The transatlantic trade pact is a death knell for euroscepticism

Alexander Pannett 1.15 pm

On Wednesday, the EU and US announced plans to forge a free trade area within two years, that would see tariffs removed and markets liberalised between the two largest economies in the world.

It is estimated that, if the agreement is successful, the free trade area would improve competitiveness, create jobs and generate billions in trade for the two economic areas. This is vital during a time of lagging global economic growth.

Combined together the economies of the US and EU account for over 54% of world GDP in terms of value and 40% in terms of purchasing power. Increased trade would also lead to a greater exchange of both human and intellectual capital. This would re-invigorate the trans-Atlantic ties that underpin that elusive idiom of the “West”.

Domestically, the proposed trade agreement has huge implications for the UK’s relationship with both the EU and US. If successful, the free trade area would mortally wound the eurosceptic movement.

British eurosceptics rue the perceived Byzantine tentacles of EU bureaucracy and instead advocate closer ties with the more economically liberal and culturally similar US.  Whilst ideologically supportive of a European single market, they question the worth of suffering a multitude of EU regulations for the dubious benefits of a free trade area with hemorrhaging European economies.

However, leaving the EU will mean being outside the proposed EU/US trade area. Considering the complexity and length of negotiations, there will be no opportunity for the UK to leave the EU and then enter the EU/US trade area as an equal third party. The EU/US free trade area would be a carrot that should not be given up.

Economics aside, abandoning the EU/US trade pact would be an absolute rejection of British foreign policy over the past 70 years. We have consistently seen ourselves at the main bridge between the US and Europe and our geo-political aims have focused on forging closer trans-Atlantic ties. A US presence in Europe assures both our security and our prosperity. It is the bedrock of the UK’s international relations.

Bizarrely, eurosceptics trumpet the foreign policy goal of closer US relations as the reason to leave the EU. They have ignored what America seeks from the “Special Relationship”. The Obama administration has been quite clear that an assertive UK in a strong Europe is what is most useful to the US. They desire an integrated Europe that can be a useful ally, and the UK’s role inside Europe is vital to achieving this.

The referendum proposed by David Cameron will allow the British public to fully engage with the pros and cons of EU membership. As John Major iterated in his backing of Cameron in a speech at Chatham House yesterday, "It will be healthy to let the electorate re-endorse our membership, or pull us out altogether. At present, we are drifting towards – and possibly through – the European exit.”

This is why the launch this week of European Mainstream, by pro-Euro Conservative MPs such as Robert Buckland and Laura Sandys, is a necessary reminder that there are many in the Conservative party who understand the importance of our relationship with the EU. This group supports the Prime Minister’s position on Europe; that both the UK and the EU are stronger with the UK inside Europe.

The proposed EU/US trade agreement is a timely reminder of the huge opportunities that the EU provides and will continue to provide. We have allowed the eurosceptics in politics and the media to dominate the debate for too long. The EU needs reform. I believe this as sincerely as many eurosceptics. But from the recent EU budget concessions to the enlarging of the EU and liberalising of the single market, the UK’s vision for the EU is bearing fruit.

The world is changing and Britain’s global interests must change with it. We are right to seek out new markets and partners and to review our existing relationships. But we must not be blind to the importance of our relationship with Europe. The British public deserves to know all the facts.  

It is time for pro-Europeans from across the political spectrum to announce themselves.

Inflation targeting, or what Arsene Wenger and Mark Carney have in common

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Matthew Robertson 1.36pm

  • May 2004: Arsène Wenger hailed as Arsenal go entire season undefeated to win the Premier League
  • December 2012: Arsène Wenger under increasing pressure as Arsenal lose to League Two side Bradford City in the Capital One Cup
  • October 1992: for the first time monetary policy in Britain would be based on an explicit target for inflation
  • December 2012: Mark Carney, the incoming Governor of the Bank of England, has suggested abandoning inflation targeting


"When the facts change, I change my mind". A quote that has long been attributed to the father of modern economics, John Maynard Keynes. It is a belief that policy should be implemented to tackle the world as it is today, not as it was yesterday.  

The position of an English football team and the comments of the Governor of the Bank of Canada may not seem interlinked but they do shed light on whether it is beneficial to adapt to changing circumstances or to maintain the current strategy in total belief that it is the correct way.

One of the great success stories of modern economics is the taming of inflation. As Mervyn King, the departing Governor of the Bank of England, stated in a speech in October:

"Over the previous twenty years (1972-1992) inflation had been the single biggest problem facing the UK economy, peaking at 27 per cent a year in 1975. Over the subsequent twenty years (1992-2012), inflation, as I mentioned earlier, would average only 2.1 per cent."

The key to this success was controlling inflationary expectations and the key to that was inflation targeting underpinned by an independent central bank. Exiting the European Exchange Rate Mechanism freed Britain to set their own monetary policy, which culminated in Bank of England independence in 1997.

A target would be set and it would be free of political interference. As long as the target over the long term was met, the expectation was anchored as any deviation would be expected to return to the anchor. This was the case for most of the past twenty years.

This policy was a reaction to the economic difficulties of the time and has been reproduced in many countries over the world. Inflation is well above expectation at the moment but inflation between 2.5 per cent and 5 per cent is low by historical standards and the reason is that the inflationary expectation is still around the 2 per cent mark.

The footballing philosophy of Arsène Wenger when he first arrived in England was equally as successful. His devotion to ‘pass and move’ football led to five trophies in six seasons as well as the first team in 116 years to go a league season unbeaten.

However, times have changed both for the economy and for English professional football. The financial crisis of 2007-2008 precipitated a new thinking in central banking theory. The Bank of England ignored concerns about inflation and reduced interest rates to almost zero per cent in an effort to enhance liquidity and reduce borrowing costs. The greater concern for the Bank at the time was economic output and preventing the economy stagnating into a long term liquidity trap. There were numerous inflationary concerns regarding world food prices at the time but the Bank, quite rightly, decided that the crisis needed urgent, unorthodox central banking. This was further reinforced by a period of quantitative easing where the Bank of England purchased financial assets from commercial banks to inject money into the economy.

In a speech on 23rd January, Mervyn King argued that pursuing a two per cent inflation rate target throughout the financial crisis, would have worsened the recession:

"To bring inflation down ‘would have meant driving down wages by creating a deeper recession, even higher unemployment and lasting damage to the job prospects of many young people."

The question now is whether inflation targeting should be abandoned for nominal GDP targets, something the new incoming Governor, Mark Carney, has suggested. A deeper question is whether the economic circumstances of the economy have altered significantly to warrant a change in approach.  Are the economic conditions so benign that there will be insufficient demand to produce growth without active interference from a central bank?

Central bankers will need to factor in these conditions along with inflationary expectations to assess which approach to take. The history of the 1970s suggests that active GDP targets don’t work but that might have been for a different time with contrasting conditions.

Whatever route is taken it raises the question of whether to change one’s mid when the facts change. The arrival of Roman Abramovich and latterly Sheikh Mansour altered the nature of English football completely. Chelsea and Manchester City have the ability to outbid and outspend any club to attract the best talent from around the globe. There is growing doubt as to whether Mr Wenger’s prudent approach of developing youngsters and buying affordable players can be successful in today’s Premier League. Despite constant criticism, Arsenal’s manager has remained dogmatic about what he considers the correct method.

Is this appropriate when the facts change? We shall see when Mark Carney takes over the helm in the summer.

By that time there may even be a trophy in that Arsenal cabinet.

Follow Matthew on Twitter @FlatFootTory

Autumn Statement 2012: A lot of Balls and a bleak midwinter?

Nik Darlington 2.57pm

I was on BBC Radio Scotland earlier talking about the Autumn Statement and just before I was due on air with the Daily Record's political correspondent, the weather report told tales of snow drifts, icy condition and road closures - painting a generally bleak midwinter picture.

In isolation, that report could’ve been about the British economy. Those heady summer days of Olympian achievement and a return to growth seem ever-more distant. This is the backdrop to what the Chancellor had to say to Parliament today, and the inclement economic weather should never be forgotten.

Indeed, Mr Osborne is set to break his own fiscal rules. Yet Gordon Brown also did that, but in the boom years - a symptom of the budgetary misbehaviour that characterised the Treasury under the feckless oversight of Mr Brown and Ed Balls.

The former Prime Minister might have lost a stick insect, but his former lieutenant was not grieving. Cheeks puce and puffed out, he berated, bewailed, gloated and tore into the man who’s office he might have had if only Alistair Darling were a lesser man.

When Ed Balls is good, presentationally at least, he is very, very good. Yet George Osborne is rarely better than when sparring with his opposite number (one gets the impression they enjoy it). I’m as unconvinced about the ‘blame Labour for all the economy’s ills’ line as I was at the time of the 2011 Budget, however Mr Osborne continues to play the card strongly, persistently and - judging by the looks on the faces of Eds Miliband & Balls - effectively. How well it plays with the public is another matter.

Former Tory whip Michael Fabricant relayed to the Chancellor the instantaneous thumbs-up from the bond markets, stating “it is the markets that matter”. Apt, to the point and certainly good news - though what voters think cannot be taken lightly either. I know what someone as acutely political as Mr Osborne will be thinking about first thing he wakes up in the morning.

Conservative MPs will be pleased with the scrapping once again of a 3p rise in fuel duty. Harlow’s MP Rob Halfon has led backbenchers on a spirited and tireless campaign against the duty, though one has to question how much gas is left in that tank. Can fuel duty rises be fought forever?

The lower threshold for income tax continues its rise towards £10,000, as expected. The personal allowance shall be £9,440 come next April.

Also to be welcomed is the further cut in corporation tax to 21 per cent. Let us not forget that it was as high as 28 per cent when the Coalition took office. Businesses can invest a greater proportion of their profits into the likes of expansion and employment. This is very good news.

The hit on working-age benefits will not play well, of course. Shrieks of unfairness can already be heard around the tenured ranks of social policy think tanks, the opposition and the like. And indeed it doesn’t look good. However, there is also the moral argument that at a time when wages are struggling to keep up with inflation, if rising at all, should welfare handouts continue to outpace? It’s a tough call, but I think it is the right one. It shall save nearly £4 billion. We can slice and dice this, that and t’other bits of public expenditure but until welfare payments are properly addressed, that ruddy old deficit shan’t budge much.

Those are my two-pennies’ worth. Plenty of ink shall be spilt and trees felled elsewhere in pursuit of explaining today’s Autumn Statement. I shall just finish with a brief thought on shale gas. I’ve had my concerns in the past about fracking for shale gas. I’m still not convinced of the safety record but I’m open to being so; and if it is the energy panacea some claim it to be, then by all means it should be pursued. Though not at any environmental cost.

Follow Nik on Twitter @NikDarlington

Hezza’s magnificent mixed bag and other riveting news

Nik Darlington 10.03am

It is “thought-provoking” and “bursting with ideas”, even “good ideas”, so say Downing Street and the Treasury. There shall be a response in the Autumn Statement, so we’re told. Of course there will, Georgie; and I think last night’s EU budget rebellion was a fine old ruse too.

Lord Heseltine’s independent growth and competitiveness review has garnered a mixed bag of reactions among Westminster’s chattering class. Sky News calls it a “radical plan for growth”. The FT calls it a “radical overhaul”. The Independent describes at as a “highly critical report” that will “just provide succour to the Government’s critics”. The Guardian, always able to locate the grey lining, says it has the look of “a pamphlet produced by an enthusiastic amateur” and full of “reheats of discarded Labour policies”. It is, so one of their journalists writes, “destined for the long grass”.

Granted, the cartoon front-cover does give it the air of something released by one of those kill-joy, bumbling, tenured right-wing think tanks. Though behind the cover there are rich seams of thought and policy. The Times (£) lauds Lord Heseltine’s “ambition and action”, his “elixir of urgency”, particularly on aviation capacity, which does indeed need to be resolved more quickly, albeit not at Heathrow in my view; that newspaper also calls the review “an important step in flushing out a broad narrative for Britain’s future”.

Even ConservativeHome, setting aside their own ideological scruples, found a few bits of the review they liked.

Whatever you deem Lord Heseltine’s review to be (and many cuds have been chewed in the past 24 hours), consider it mainly as this: a classic ruse to create a space within which Downing Street and the Treasury can operate. By daring Tarzan to reach for the stars, George Osborne may hit the moon. This much is obvious.

Elsewhere, it has been a busy couple of days for politicians from this stable. The Sun reports Alistair Burt, foreign office minister, warning of the “real threat” of a nuclear dirty bomb being deployed against Britain. This at a time when concerns are resurfacing about Iran.

The abortion row shows no sign of abating as new health minister Anna Soubry signals no intention of changing laws or guidelines on abortion counselling. The Daily Mail is not amused, nor, for her two pennies worth’, is Nadine Dorries.

On Tuesday, new energy minister John Hayes unilaterally opposed the Government’s wind farms policy. The Telegraph's Peter Oborne writes today that he has “never come across anything quite like it in 20 years reporting politics”. Embarrassing, amateur, or just plain odd: call it what you will, Mr Hayes’ hysterics may have pleased some people, but it sends out a stupidly senseless hodge-podge of mixed messages to investors. This is the scenario spelled out by Mr Hayes’ predecessor, Charles Hendry, as reported today by the Times (£). A group of twenty Tory MPs has quite rightly written to the Prime Minister to complain.

And to finish, a little note of welcome and good luck to new Tory group, Blue Collar Conservatism.

Chaired by the MP for Carlisle, John Stevenson, and led by a broad-based advisory group consisting of Esther McVey (Wirral West), David Nuttall (Bury North), Martin Vickers (Cleethorpes), Philip Davies (Shipley) and Matthew Offord (Hendon), Blue Collar Conservatism aims to foster debate and generate ideas to ensure that blue collar voters remain at the heart of the Conservative party’s agenda.

The new group draws on the support of sixty-three Tory MPs, including the Chief Whip, Sir George Young; the new secretary of the 1922 Committee, Robert Buckland; and others including Damien Green, Laura Sandys and Robin Walker.

If the Conservative party is and always has been a coalition of parties itself, then Blue Collar Conservatism is an admirable cross-party initiative and I wish it well.

Follow Nik on Twitter @NikDarlington

Expanding the entrepreneurial economy

Alexander Pannett 8.00am 

The British economy is suffering from one of the worst economic slumps in decades. Government spending is being cut back on an unprecedented scale and the private sector is expected to take up the slack.

So how do you expand the entrepreneurial economy in such a woeful environment?

That was the subject of a keenly attended panel discussion at one of the TRG’s fringe events at the recent Conservative conference.

Universities and Start-Ups

Tim Barnes, former TRG Chairman and Director of UCL Advances, believes that universities can boost entrepreneurial activities. Barnes argued that the removal of the RDAs may have been justified on several grounds but resulted in the loss of strategic economic planning in localities. 

Start-ups require specialist advice, infrastructure and equipment. Universities can provide the economic support that was previously directed by the RDAs and provide such skills and equipment to SMEs.

As well as teaching and research, universities could provide a third role to society and give direct economic benefit. Universities are already very good at liaising with business; £3 billion was raised last year from private investment.

However, there are currently restrictions on universities giving direct support to entrepreneurship. A large business cannot be run on university facilities. Students are not allowed to use university facilities between the time their examinations have finished and the date they graduate. A time that could be spent supporting and fostering the entrepreneurial ambitions of students before they enter the wider business environment.

In the US, 36% of SMEs would use universities to help with their business. In the UK the figure is 18%. This stops SMEs thriving and leads to the business sector being unduly weighted towards large corporations.

Improving university support for entrepreneurship may even bring social value by making it more likely that social enterprise start-ups survive and prosper.

Innovation and the Digital Economy

The importance of the digital economy is vital for providing the tools needed for entrepreneurship to thrive. Facebook, Google and YouTube are household names. They all originally started life as digital start-ups in the US before becoming the billion pound businesses they are today. Where are the equivalent digital success stories in the UK?

For Professor Birgitte Andersen, director of the Big Innovation Centre at The Work Foundation, there is not enough finance in the UK for digital innovation and how knowledge is managed in the economy.

There are three areas that need investment to improve the digital economy:

1)   Catapult Centres are being built by the government. These can create a critical mass for business and research innovation by focusing on a specific technology where there is a potentially large global market and a significant UK capability. They will allow businesses to access equipment and expertise that would otherwise be out of reach, as well as conducting their own in-house R&D. They will also help businesses access new funding streams and point them towards the potential of emerging technologies. However the Catapult Centre for the digital network has not yet been started. It requires much more investment;

2)   The UK legal framework needs to be reformed to ensure open source communities are legally protected. There must be a relaxation of copyright and patent laws for the public domain. This will stimulate the digital sharing of ideas; and

3)    Every household should be given access to high speed broadband, including both urban and rural areas.

Education and Entrepreneurs

As well as reforming the support structures that are available for SMEs, the actual attitude of the public towards entrepreneurship must also be changed. Public opinion must become much more positive about the merits of innovation.

Hushpreet Dhaliwal, Chief Executive of NACUE, suggests that educating young people should be the main focus of expanding entrepreneurship rather than just improving the business output of SMEs.

The focus should be on emphasising the entrepreneurial opportunities that can be generated for children, especially those who currently feel alienated by the education system. This could be achieved by introducing business studies into the education system at an earlier age and making sure it is relevant to the aspirations of children.

SMEs and Infrastructure

Despite the doom and gloom there are positive signs for innovation in the economy. Professor Mark Hart noted that, despite the economy flat-lining for the last 5 years, there have been 0.5 million jobs created each year. Analysis has shown that the level of entrepreneurship amongst 18-24 year-olds in Wales has tripled in a decade. This shows that there is a high level of entrepreneurship in the UK economy, which is a positive sign.

However, whilst the level of interest in running businesses may have increased, there is not the necessary infrastructure support. Hart agreed with Tim Barnes that business schools can provide the infrastructure to improve entrepreneurship and universities should be given targets to increase business outputs. But Hart also argued that new financial models are needed to finance new businesses. With banks reluctant to risk lending to new businesses, it is of vital importance that SMEs are given new sources of finance to fund their expansion.

Improving entrepreneurship does not mean increasing the number of start-ups. What is important is that start-ups have the advice and support to ensure they survive and grow. 

Hope for the future?

Improving innovation is vital for the UK’s future economic prosperity. Whilst the depressed economic climate poses new challenges to UK PLC, effective measures can be undertaken now to expand entrepreneurship. 

Using universities to provide the support infrastructure needed for SMEs would be an efficient and cost-effective use of existing facilities. Investing in better training programmes both in education and with new Catapult Centres would dramatically improve the advice and resources needed to stimulate SMEs. In the longer term, ensuring that every household has the same right to high-speed broadband as they do to water and electricity should be the ultimate goal of any government committed to innovation.

Expanding entrepreneurship is an achievable goal and one that is of vital importance in today’s depressed economic atmosphere. Instead of worrying about the mistakes of the past, the government would do well to concentrate on the solutions of the future.

Follow Alexander on Twitter @alpannett

'Winning with the Coalition': full text of Stephen Dorrell's speech to the TRG

Nik Darlington 7.19am

Full text of the Rt Hon Stephen Dorrell MP’s speech to the Tory Reform Group in Parliament yesterday evening.

WINNING WITH THE COALITION

The TRG has always had a soft spot for Disraeli. His most ardent admirer couldn’t describe Disraeli as an unbending man of principle. (He had a more obvious – though often no less flexible – competitor for that accolade). But he was a supreme practitioner of the art of politics – and he can lay a better claim than anyone else to be the founder of the modern Conservative Party.

One Nation

Indeed so attractive is Disraeli’s combination of humanity and purpose that Ed Miliband is the second Labour leader in 20 years to attempt to cloak himself in Disraeli’s clothes. Like Tony Blair before him, Miliband is attracted to the slogan “One Nation” but, also like Blair, he faces the problem that his party cannot reconcile Disraeli’s aspiration with its own inherited prejudices.

Does Miliband celebrate success, or does he envy it? Does he embrace excellence and challenge others to emulate it, or does he regard it as evidence of injustice? Does he want to empower the innovators, the people who get there first, or does he prefer to preserve the appearance of equality by moving at the pace of the slowest?

In short does he believe that human progress is powered by disruptive individuals who challenge the societies in which they live, or does he believe that progress is a collective endeavour?

Disraelians have clear answers to these questions. They draw on the traditions of Burke, Pitt, Canning and, ironically, Peel. They know that successful societies evolve and that inherited institutions provide continuity and stability; but they also know that they must be constantly changing in response to new challenges and that it is the interests of every citizen to ensure that individuals are responsible for their own actions and, critically, encouraged to test out new ideas.

As David Cameron puts it – “There is such a thing as society; it’s just not the same thing as the state”. When Ed Miliband can repeat those words to his party conference and receive a standing ovation he will have earned the right to speak of One Nation.

England does not love coalitions

But it isn’t that aspect of Disraeli’s legacy on which I want to focus this evening. Instead I want to address directly his famous dictum that “England does not love coalitions”. This observation is often quoted to challenge the present government – and to suggest that it is somehow abnormal for politicians with different personal and intellectual roots to work together to create a stable government.

Such people misunderstand both the historical context of Disraeli’s remark and, more importantly, the conclusions which he and his successors drew from it.

It is ironic to reflect that until Disraeli lost office to Gladstone in 1868, his only experience of stable single party government was the government of Robert Peel which he worked so hard to destroy during his first parliament as an MP.

Seen in this context, his observation about coalitions was less an observation on the normal state of mid-nineteenth century politics, and more a statement of a problem which is faced by all leaders in an open political system.

If a government is to achieve results which endure, it has to give itself the political space to achieve substantial change. It needs authority – what the Romans called auctoritas – and that cannot be achieved if the survival of the government itself is always subject to negotiation in the shifting sands of parliamentary politics.

It was his experience of those shifting sands in the 1850’s which encouraged Disraeli to build the foundations of the modern Conservative Party in order to provide himself with a stable Parliamentary majority – and with it the political authority he needed to carry through the social reforms for which his government of the 1870’s is remembered.

He understood that his generation would never form a stable Parliamentary majority solely on the basis of its traditional support from the landed interest. He therefore challenged his party to reach out beyond its comfort zone and win support in the fast growing cities of Victorian England.

He repeatedly declared it to be his central purpose to “improve the condition of the people” – and he went on to organize and mobilize them to give him the authority to deliver on that pledge.

Salisbury and Chamberlain

Furthermore, and perhaps even more surprisingly to his party, Disraeli’s successor, Lord Salisbury, a representative of the landed interest if ever there was one, continued Disraeli’s work by attracting into the Conservative Party the Chamberlain Liberals – who became the foundation of the “Birmingham” tradition which played such an important role in the Conservative Party during the first half of the twentieth century.

There are, therefore two key lessons for us in the story of Conservative politics in the second half of the nineteenth century.

First, the whole point of the Party organization which Disraeli created was to reach out beyond the party’s core constituency and create a basis of support for Conservative politics among people who would never previously have thought of themselves as Conservatives.

Second, Salisbury’s alliance with Chamberlain introduced into Conservative politics the radical, non-conformist spirit of Birmingham which ensured that the new party organization was able to express the ideas and aspirations of the new voters whose support it was seeking.

Cameron and Clegg

The fact that Disraeli adopted the name Conservative for his new organization was part of his political art. He would have understood the absurdity of Blairite rhetoric about Britain as a “young country” – and he would undoubtedly have been memorably sarcastic about it – but he also understood something which is ultimately more important.

If a political party is to secure sufficient authority to allow a government to govern it has to reach beyond its comfort zone. It must challenge itself to broaden its appeal. It must learn to articulate the ambitions and aspirations not just of its established supporters, but of those whose support it seeks.

Disraeli was not interested in creating an instrument for the complacent defence of self interest; he sought to maintain the trust of the traditionalists while reaching beyond them to embrace a changing world.

Our challenge is, as it always is, to do exactly the same.

That is why David Cameron was so right to lead the Conservative Party into coalition with the Liberal Democrats in 2010, and why the record and programme of the Coalition Government are so deserving of the support of all Conservatives.

It is worth reminding ourselves about the choice that Cameron faced.

He could have relied on the ideological certainties of the comfort zone. He led the largest party in Parliament so he could have formed a minority government drawn from a single party which had been supported by 36% of the electorate and set out to deal with the most serious economic recession since the 1930’s on the basis that every important vote in the House of Commons would have required him to negotiate a new coalition of support.

It would have been to re-create, almost precisely, the circumstances which led Disraeli to make his remark about coalitions – it was made at the end of the budget debate in 1852, just before a critical vote which brought the government down as a result of a parliamentary deal on the opposition benches.

The alternative course was to learn from the experience of Disraeli, Salisbury and Chamberlain. They demonstrated the importance of looking beyond parliamentary deals and creating a stable government based on a parliamentary majority which reflects popular support.

The Coalition Agreement of 2010 has provided the basis for a government which has a parliamentary majority of 78, drawn from parties which were supported by 59% of the electorate.

Coalition succeeding and retaining public support

Sceptics argued at the time that the Coalition Agreement would not hold and that the government’s authority would prove to be illusory. They said that ministers would be unable to work together. They were wrong about that. They said that the Government’s parliamentary majority would prove to be unstable. They were wrong about that. They said that party members would not support the Coalition. They were wrong about that too.

In fact the Coalition has so far confounded the sceptics on virtually every count. They expected it to be a weak government which was unable to confront the key issues facing our country. In the event it is proving to be an effective government which is carrying through necessary but uncomfortable changes across the full range of government activity – and retaining remarkable levels of public support as it does so.

Mid term opinion polls can usually be relied upon to produce lurid headlines for governing parties – and voter support for both the Conservatives and the Liberal Democrats has certainly fallen since the General Election. It is however worth noting that despite these mid-term doldrums, Labour has been unable to establish even a minimal lead in public opinion over the combined votes of the coalition parties.

Voters are well aware that our country faces major issues and they would rightly be unforgiving if they felt that their government was absorbed by the machinations of parliamentary politics. In fact, while they don’t like everything it does, they see a government which has secured and is using the political authority necessary to address the challenges we face.

Economic change

From the day it was formed, the most urgent challenge facing the Coalition has been the need to restructure our economy to allow us to compete successfully in the global market place. Meeting that challenge requires the Coalition to address two issues, both of which are work in progress.

First, it was essential from the beginning, and remains essential today, that the government has a credible plan to bring its own budget under control.

You don’t have to believe that the banking crisis was “made in Downing Street” (which it wasn’t) to recognize that the scale of our government deficit was the result of decisions made there – by, among others, Ed Balls and Ed Milliband. Despite their protestations of political virginity, the two Eds were in it up to their elbows. They spent when they should have saved; they ran deficits when they should have run surpluses.

The result was that the Coalition inherited a structural deficit in our public finances which qualified us for life membership of Club Med and threatened Britain with a crisis of confidence in financial markets.

The fact that Britain has retained its triple A rating and, more importantly, is able to borrow at roughly German interest rates despite running a government deficit comparable with Greece, is due to the fact that the Coalition has demonstrated that it is willing to take the steps necessary to put our public finances back on to a sustainable basis.

The broad basis of its support is key to its political success. Some elements in the Coalition would have preferred sharper spending reductions (for example on overseas aid spending, or possibly on health); others would have attached a lower priority to holding down the tax burden. But none of them would have been able to carry their policy either in the House of Commons or, more importantly, with the public because they did not command sufficient public support.

The Coalition exists because none of its members believe, like the two Eds, that the solution to excessive debt is more borrowing. The electorate took a decisive step away from that approach in 2010, and the Coalition has agreed a deficit reduction programme which commands the confidence of the financial markets in part because its broad political base enhances its credibility.

The two Eds continue to argue that we need to borrow more – indeed it is an interesting intellectual speculation to wonder in what circumstances they would acknowledge the need to borrow less – but the fact of the Coalition has made it impossible for them to win that argument.

Growth

But economic policy is not just about deficit reduction. When governments borrow too much they undermine the stability of an open economy which destroys the opportunity for growth. Having established a credible programme of deficit reduction, the Coalition has also recognized the need to ensure that the engine of growth is reignited.

Growth is not created in Whitehall. It is the result of businesses meeting demand for goods and services at prices which consumers can afford to pay. It is a process of continuous product, service and process enhancement driven by new insights about a changing world.

Furthermore it takes place in markets which are always changing, and where the pace of change is quickening all the time. Continuing technical advances, instant communications and the continuing process of globalization, represent unprecedented forces for economic change which are generating new growth opportunities, in particular in emerging economies, which, in turn lead to new challenges and opportunities for western economies.

For virtually every business this combination of circumstances creates a demand for radical change. The challenge for our society is to ensure that our political and social structures reflect the sense of urgency which this relentless process demands.

That is why the Coalition has introduced a wide range of measures to target investment funds at priority areas and reduce regulations which restrict the ability of businesses to respond to the demands of their customers. It is also why the House of Commons will tomorrow be considering further changes to the planning system to reduce its ability to constrain economic development.

Once again the Coalition is able to draw strength from the breadth of its base. Economic change is uncomfortable; it impacts on the daily lives of every one of us. It requires us to surrender the familiar and trust in our ability to conquer the unknown. It requires us to unlearn the old lesson about “holding on to nurse, for fear of finding something worse”.

That is why it is important to engage people in the process – to demonstrate that growth is not motivated by a desire to pour more concrete on green field sites in order to pay higher bonuses to bankers. Growth provides the means to deliver environmental objectives, housing improvements, as well as improved job prospects and improved public services. But growth can only happen if businesses are able to change in response to the demands of their customers.

Establish a Growth Commission

An idea was suggested to me recently which I believe the government should consider as a way of further reinforcing electoral and political support for this process of economic change. It is based on the experience of Sweden in the 1990’s, when they faced some familiar economic challenges – unsustainable public finances coupled with an uncompetitive private sector.

The Swedes established an Advisory Commission, independent of government, which performed the dual function of challenging government to make changes which were necessary to allow their economy function more effectively and – by making the case for such changes in public from outside the political world – help the government win public and political support to carry them through.

It is not unlike the system of independent advice, publicly given, which John Major’s government established after Black Wednesday to improve the quality of policy making on interest rates in the days when they were determined in Whitehall. No-one argues for a return to “political money”, but the Swedish precedent provides an interesting option for maintaining, and further reinforcing, the Coalition’s core commitment to build a more open and competitive economy.

Reforming public services

No political priority is more sensitive than the requirement that all public services, and in particular health and education, must deliver equitable access to services which meet high quality standards as well as high standards of efficiency.

This sensitivity arises because we are all involved both as funders through our taxes and as actual or potential service users. If the whole community feels itself to be affected by decisions taken about these services, it is inevitable that the  politicians will also take an interest in those decisions – indeed the politicians would be taken to task by voters if they did not.

For example the changes which are currently faced by health and care providers are as fundamental as the changes faced by any global trading business. Our hospital sites may now look relatively modern following the substantial investment of recent years, but the system in which they work is fundamentally ill-suited to the times. In healthcare, as in every other sector, consumer demands and developing technologies are driving a ferocious pace of change.

But the changes which are required – which will lead to a smaller hospital service and much greater emphasis on community-based services – will challenge public perceptions; people will be asked to transfer their trust from visible structures to largely invisible systems, which experience has so far taught them are often unreliable. They will be inclined to believe that service levels are being reduced – although all the evidence actually points to significant improvements in outcomes if the system is refocused towards early intervention and prevention.

Health and Wellbeing Boards will have the ability to prepare the way for these changes by looking beyond the silos created by history and re-imagining a care system built around the needs of the patient. Their roots in local communities will strengthen their ability to carry through radical change, but it is also – once again – the breadth of the political base of the Coalition which offers the opportunity to carry through fundamental change.

Public services need to be open to disruptive new ideas. Closed systems are too easily convinced of their own excellence; mediocrity goes unrecognized and shiboleths go unchallenged. We need to encourage challenge in a system which instinctively distrusts newcomers.

But if we are to maintain public confidence during this process we need to demonstrate both nationally and locally that changes are being implemented in order to improve the quality of service delivered – not simply to save money. It is a task to which the Coalition is singularly well-suited.

Europe

The final issue on which I want to touch this evening is another which, contrary to general perception, I believe the Coalition is well placed to address.

Most observers will tell you that they have been pleasantly surprised that Coalition minsters have been able to agree policies on deficit reduction, student fees, planning and civil nuclear power, to name but a few, but they go on to say that “they’ll never agree on Europe”.

In other words, we have been wrong every time so far, but we are right this time.

In fact the Coalition parties have a broad measure of agreement about Europe.

No-one favours joining the Euro; nor does anyone favour joining the economic union which it is increasingly clear that our continental partners intend to create.

Those are decisions made, but the debate in Britain continues to muse about the likelihood of the failure of the Euro and the “threat” of a developing superstate.

The real issues we need to face are quite different.

The developing economic union is our largest overseas market. It would be odd if it were not – it is the largest market in the world and it is on our doorstep.

It is sometimes argued that we run a trade deficit with the economic union and that it therefore has more at stake in its relationship with us than we do with it.

That is vainglorious nonsense on two counts. Firstly we are a significantly smaller share of their total trade than they are of ours; secondly, and much more importantly, it ignores completely the biggest shared economic interest of all between Britain and the economic union which lies in the City of London.

London is quite simply the world’s premier financial market. It is hugely in the interests of both Britain and our partners that Europe as a whole is able to benefit from the opportunities that London’s pre-eminence creates.

Financial services may not be the fashionable theme of the moment, but sometimes in life it helps to be uncool.

London’s financial services sector is part of our national competitive advantage. We should nurture it and promote it – and we should understand that to allow it to be separated from its natural economic hinterland is simply absurd.

Absurd from the UK point of view – but equally absurd from the point of view of an economic union which badly needs access to all the capital resources and trading opportunities it can create.

In other words I believe the European argument has changed fundamentally over the last decade. Our partners have decided to create an economic union and we have chosen not to be part of it. It is a decision made. On both sides. Job done.

It will be for our grandchildren to decide whether we were right; they will write the history, not us. Our job is to make our decision work.

And that is where the role of the Coalition is so important.

Different parts of the Coalition will express this analysis in different language, but there is a shared understanding of the importance of the endeavour. Just as the broad basis of the Coalition helps it to win authority to tackle difficult issues of economic and social change, so I believe it can be the ability of the Coalition to reach beyond the comfort zone of a single party which creates the opportunity achieve a real change for the better in our relationship with the rest of Europe.

Conclusion

And so we are back to Disraeli.

He built the Conservative Party as a permanent coalition between the landed interest and the Victorian cities. His coalition was further broadened when Chamberlain made Birmingham a Conservative slogan.

That coalition held office for two thirds of the twentieth century, but towards the end of the century it ignored Disraeli’s challenge and retreated into its comfort zone.

In 2010, David Cameron challenged both the Conservatives and the Liberal Democrats to leave their comfort zones and face the realities of office in a Coalition that has the right to speak for the majority its compatriots.
In doing so the Coalition has demonstrated both its ability and its willingness to face issues which other governments have regarded as too hot to handle.

The Coalition Agreement is David Cameron’s answer to Disraeli’s challenge.

The issue for the future is simple.

The Coalition Agreement comes to an end.

Disraeli’s challenge does not.


ENDS

Broken Britain or broken politics?

Alexander Pannett 10.30am 

At the conference there were a variety of interesting fringe events but one that particularly caught my eye was a panel debate run by Respublica exploring post-liberalism.

The panel discussed whether “Broken Britain”, characterised by the recent 2008 financial crisis and 2011 riots, is suffering from a malaise brought on by the damaging consequences of social and economic liberalism.

As old traditions and social mores were challenged in the later half of the twentieth century, the social cohesion forged during the Second World War was torn apart by the rise of individualism.

Advances in society, such as improved gender and race relations, coupled with the economic unraveling of the post-war economic consensus initiated a revolutionary change as both society and economy were re-ordered around the individual.  This led to deep divisions between liberalism and conservatism that has had un-intended consequences.

Phillip Blond, director of the think tank Respublica, made the case that liberalism has destroyed the traditions of both Left and Right. Liberalism has caused the elite to become self-serving, absent of virtue. As an ideology, it does not engage with the values that matter to communities.

Certainly political parties have adopted contradictory policies as they have tilted their axis towards the individual. The Tories adopted economic liberalism but social conservatism whilst Labour favoured economic conservatism and social liberalism. Both sides failed to foresee the true revolutionary impact of liberalism on existing British communities and how it contrasted with conservative concepts of society.

For Jesse Norman, MP for Hereford and South Herefordshire, freedom is the absence of fetter to the individual will. Liberalism therefore focuses on the present and the person.

Conservatism focuses not on the individual. The individual is subordinate to society. The social construct comes first. It is not for individuals or a particular generation to undermine society for their own gain.

Norman proposes a post-liberalist revival of conservatism through markets that are based on trust, custom and internal rules. The fusion of social capitalism and market theory is the future of conservatism.

David Goodhart, director of the think tank Demos, suggested that post-liberalism focuses socially on a return to strong morale intuition and patriotism, with skepticism towards large-scale immigration, integration and globalisation.

I agree with Goodhart that political parties have been dominated by a post-secular, mobile elite, which have interests that diverge from the rest of society. An example being when New Labour neglected the education of the lower half of the population due to their obsession with increasing the numbers attending higher education. A large part of the population is immobile and the cosmopolitan elite does not serve their needs.

But how should political parties tackle the ravages of liberalism, which has left the British feeling alienated and disconnected from each other?

Phillip Blond contends that a post-liberalist response should mean further economic support for the family to buffet against the radical challenge that liberalism poses. He sees the family as one of society’s most progressive social units, teaching humans the importance of social bonds and unconditional support at an early age. He also advocates the increased use of mutuals and other economic structures that promote a wider participation in the equity of community assets by the disadvantaged.

However, Goodhart does not believe that post-liberalism has a credible economic policy yet. In this Goodhart is unfortunately correct.

The insidious force behind liberalism is the unfettered movement of global capital. The ebb and flow of jobs and capital to the cheapest global locations of production has destabilised existing social and economic structures. It will take more than a hardening of divorce laws and a John Lewis economic model to roll back the malign effects of globalisation.

Whilst post-liberalism does identify causes of “Broken Britain”, a remedy will take more than post-liberal promises of “One Nation” politics from the leading parties.  The turbulence and banality of liberalism is too pathologically fixating to be addressed by such empty noblesse oblige.

Follow Alexander on Twitter @alpannett

David Cameron had plenty to respond to today, and respond he did

Nik Darlington 1.58pm

Well I wrote last week that Ed Miliband’s speech to the Labour party conference would “strike a chord”. I also wrote that David Cameron, in his own speech today, would have to respond by “uniting under a common banner” and set himself out as the true custodian of One Nation politics.

He did it. With a speech as tight as Mr Miliband’s was free-form, David Cameron did as he does best. Reassure at the moment of least assurance; strike at a moment of weakness; go on the offensive when seemingly on the back foot.

With the economy still in a sticky place, the opposition leader’s own surge and sections of his own party squabbling (and enjoying doing so, it seems), Mr Cameron had little right to appear so confident.

Yet this was a speech of optimism, expecting the best in people and rejoicing in our nation’s successes; rather than pessimism, not expecting enough of people and putting the country down.

It had good jokes. The Labour party, as I said last week, cannot truly be a “One Nation party”; it is also perhaps unfair to call it a “One Notion” party, but the exchange of one vowel for another drew plenty of laughs. Not as witty as Mr Johnson, but a worthy quip all the same.

The most important message was contained in one word: “work”. Or maybe two: “hard work”.

It wasn’t that Britons don’t work hard enough, the asinine impression willingly given by the authors of Britannia Unchained. It was that a lot of people in Britain do work very hard indeed, but to “swim” rather than “sink”, we all need to redouble our efforts to compete in the global economy.

The spirit of the Olympics and Paralympics was conjured up to demonstrate the values of hard work and dedication. Mr Cameron’s disabled father’s parable of working to provide your family brought warmth, depth and experience to this very important passage.

"Hard work", "strivers", "aspiration Britain" - call it what you will. Mr Cameron gave a convincing speech that managed to combine caution with optimism, and the constraints of difficult times with the freedom of enterprise and ambition that Britain has always been known for.

Follow Nik on Twitter @NikDarlington