Why we need a bolder #BeyondBrexit Conservative economic vision

19th March 2018

Here is a chart that should strike fear into any British policymaker. The Institute for Fiscal Studies has a graph showing the future direction of health and other cost pressures on the public finances. It is shaped like a Nike tick: from the current level, it rises inexorably upwards.  Welcome to the structural deficit: when the rate of rising demand pressure on spending  from an ageing society reliant on the welfare state exceeds the rate of growth in the economy.

There is no doubt that the economic challenges ahead are structural. With an ageing economy the UK economy needs higher growth, higher productivity AND higher spending for the public services in most urgent need: NHS, social care, mental health, schools and defence.

As Philip Hammond set out in the Spring Statement this week, eight years of post-Crash spending constraint have secured a welcome improvement in the public finances.  I believe that the Chancellor is right to recognise that the first phase of fiscal consolidation is over.

But with £1.5trn of debt, a stubborn structural deficit, spiralling demographic pressure on health costs and the Brexit impact on investment confidence,  this is not the time to turn on the taps for across the board spending increases.

Instead, we need to recognise - and explain to the public - the scale of the structural challenge we face, and recast Brexit as a moment to embrace a bolder and more inspiring approach to the the underlying economic causes of the grievances luring the electorate to Corbyn.

As Michael Gove has done at DEFRA, we must seize the moment to ensure that Brexit is a moment of transformation. Nowhere is that as urgent as in economic policy.  So let's take the opportunity now of setting out a bold #BeyondBrexit economic strategy.   What should it look like?

First, there should be a much greater focus on innovation. We won't escape debt with growth at 1.5% and low productivity.  We need a renaissance of enterprise & innovation.  British buccaneers have done more to transform this country's prospects than any Government Department.  We need to stop the business bashing and promote entrepreneurship and innovation. While the UK is still a crucible of start-up   entrepreneurship, the engine is not yet humming: we have too many start ups that are never scaling up, too little of our innovation funded by the City and too little taken global by British companies.

Second, we need new approach to enterprise and innovation in the public sector.   The structural deficit requires wholesale modernisation of public services. That can't happen without innovation.  And we won't build an Innovation Economy without the public sector procuring & adopting innovation. Take the NHS: we will never build a world-class life science cluster without an NHS that is supportive of innovation. And we'll never build a modern NHS without the digital diagnostics and innovative medicine that the life sciences sectors is producing.

Third,, we have to embrace bolder ECONOMIC localism. Let's remember that our national economic performance is made up of local economies, all of which need to be growing faster. Another five years of ever tighter 'command and control' spending controls from the Treasury risks undermining local growth and innovation.  At present, if a council or hospital delivers more for less, we give them less. Too often, Whitehall's funding orthodoxy rewards failure.  If you ran a business like that it would be bust.  And depressing to work in. It's no wonder public sector leaders are dispirited.  Many are leaving.  We need them to stay.  So why don't we send a signal to encourage them, be bold and embrace a new model of incentives-based funding which rewards successful local service leaders for delivering efficiency & productivity?

The age of debt and deficits requires a new Treasury funding model. The post War model of dispensing the proceeds of inexorably growing tax revenues is over.  We need a new approach based on a radical idea: if an area reduces the deficit quicker than Whitehall's average we should let them keep [50]% of the savings to re-invest.  Why not the same on growth? If councils grow their tax base, why not let them keep [50]% for local services?

Next, the UK should be using every tool possible to unlock access to the fastest emerging markets in Africa and Asia.   For 40 years our whole economy has been geared to our being a European services economy.  Why don't we make Brexit the moment to embrace a new global strategy for higher growth through exporting technology and innovation into emerging markets? If the opportunity is properly seized, we could use our Industrial Strategy and public sector innovation to make Britain a crucible of new technology scale up and financing through the City, and then use our Aid budget and global soft power in emerging markets to grow our exports and trade links with the fastest growing economies.  Why don't we offer some of the fastest emerging countries where we have a strong historic links a deeper Aid Trade and Security Development Partnership?

Finally, we urgently need to reboot popular support for capitalism. That means recognising that Corbyn is feeding off legitimate economic grievances of a generation hit hard by QE and austerity. Which Corynomomics will not resolve.  So we must NOT offer Corbyn-lite. Rather, we should be busting open markets dominated by too few companies, boldly empowering customers, spreading wider share ownership through mutual and co- operative capitalism & promoting the ability of "for profit" social enterprise to solve some of our most intractable   social problems.  We need to show that capitalism is not just about share value, but about shared values.    Behind Corbyn are dangerous Marxists who want to see free enterprise capitalism destroyed. If we don't tackle widespread disillusionment from a generation struggling to acquire any capital, we risk Corbyn being given a chance to do it for us.

At the heart of a serious Beyond Brexit economic strategy needs to be an honest account of the scale of the structural deficit and a vision of HOW we tackle our long-term economic challenges.  Next year's comprehensive spending review will define Conservatism beyond the Brexit era.  We can't continue with  5 more years of depressing command and control austerity. Nor can we simply abandon the Cameron-Osborne era of spending constraint for a Corbyn- lite spending spree: do that and we risk ceding the argument and gifting Corbyn economic credibility.

No. We need a bolder economic vision. In twelve months, the UK will no longer be a member of the EU. Many fear it will make us poorer. Those who voted for it were promised it would make us more prosperous. To prevent Jeremy Corbyn taking over, we need to make sure it does.

But it will not just happen. This generation needs to be as bold as Margaret Thatcher was in the mid-1980s. Having overseen austerity during her first five years in office, her governments under Lawson then unleashed economic reforms to reward risk-takers and innovators in business.

We need a similar reboot to tackle the great issues of today. The Spring Statement showed that the challenges of austerity have brought our economy back from the brink. Now is the chance to define a new economic strategy that will take the UK forward after Brexit. Voters are looking for a vision. We need to give them one:  centred on a BeyondBrexit Conservative "capitalism for the little guy" which delivers higher growth, greater opportunity & local freedom, more rewards & fewer penalties, and a more inspired and inspiring vision of Britain's economic Destiny. At home and abroad.  What are we waiting for?

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