Bim Afolami is MP for Hitchin and Harpenden.
Covid-19 gives us the chance to examine deeper questions about the nature and direction of economic policy. I believe it is time to have a rethink of our economic philosophy as a Conservative Party, and rediscover some fundamental Conservative principles – which are, and always have been, much broader than support for market economics. We need to embrace an active enterprising state, reformed and reforming, that can help drive an enterprise nation forward. And one with strong environmental credentials, which can deliver an everlasting environment.
Much of current Conservative economic thinking was set in the Thatcherite revolution, succinctly described by Nigel Lawson in 1984 as “increasing freedom for markets to work within a framework of firm monetary and fiscal discipline”. I agree with that and believe that articulates a simple truth at the heart of macroeconomics which is still true.
However, the greatness of Thatcher was not ideological. It was because she was radical in reaching solutions for the economic problems of that time in ways that were rooted in Conservative principles of freedom, opportunity, self-reliance and prosperity on the basis of hard work.
We need to do the same today. Conservative thinking on economic policy has become muddled in recent years. We profess to believe in a balanced budget, but we do not want to reduce government spending. We often talk about reducing bureaucracy and regulations – yet our tax code continues to become more complicated and the quangocracy goes from strength to strength. We believe in devolution, yet the Treasury keeps its iron grip on all major infrastructure decisions. We need to be clear what and who we are for and show how timeless Conservative principles also apply to our new age.
The economy should benefit the person with ideas rather than inheritance. It should support families and communities rather than allowing multinationals to rip them apart in the name of efficiency – the family and small communities are the bedrock of society. It should unashamedly help the British business grow and scale here at home – and be better at supporting our national champions in different sectors. Finally, as climate change worsens, we should aim to make the UK the cleanest economy in the world, truly a Conservative act, conserving our green and pleasant land for our descendants.
I believe that there are five principal, significant, long-term economic problems in the UK at the moment, and that Conservative economic thinking needs to provide a sensible response to them. These are: (i) poor investment and productivity growth; (ii) too much SME debt and too little equity; (iii) growing fiscal challenge; (iv) unbalanced growth – the need to level up; and (v) climate change.
To deal with these we need an enterprising state, which can help power an enterprise nation.
Central government needs to be a macro-enabler. It needs to use its broad strategic oversight to enable the private sector and devolved parts of the public sector to do transformative things.
The Government has set out its clear intention to build and deliver much more and better infrastructure. Yet the way for us to achieve this cannot be for the Treasury to control every single infrastructure decision of any consequence. We need to facilitate private investment in infrastructure, by allowing many more development corporations to be set up using innovative financing models that allow money to be raised locally.
We should establish a UK Sovereign Wealth Fund (long championed by John Penrose MP) that would create a pot of savings that could pay for state pensions and benefits. The Fund would provide an intergenerationally fair solution that would take some of the burden of these costs from being shouldered by future generations. It would also be an ‘anchor investor’ providing long-term investment capital for British entrepreneurs and start-up businesses and would help provide equity to UK SMEs which have too much debt to grow.
An enterprising state cannot be governed by command and control from Whitehall. We need to give local areas and cities the ability to experiment with different ways of doing things, to learn from their own experiences and from each other. This should have two aspects.
The first is that all regions (particularly in England) need to have a greater degree of fiscal autonomy. We should allow regions to (i) raise local income, sales and tourism taxes (all up to a limit); (ii) make decisions on infrastructure to allow them to give private companies the ability to build and operate new infrastructure; and (iii) give local public services much more freedom on procurement.
The second aspect is that the enterprising state needs to remember that economic growth and success can often come from investment in non-economic things by local people. Investing in a village hall or local library may not have an ostensible economic benefit, but improving the local environment of a small town can have incalculable improvements to the lives of those who live there, and can have significant economic benefits through increased desirability and investment.
We Conservatives know that prosperity does not fundamentally come from government. It comes from people willing to start and sustain a business.
We should reduce NI for new hires, keep taxes on the self-employed low, and maintain the difference between capital taxes and income taxes – capital taxes should be low because we should reward those who take risks.
The central government should also work with the private sector to help the UK’s technological landscape. Every reliable blockchain development company confirms that emerging technologies like blockchain should be utilised to help revolutionise our approach to trade and SME finance through a Centre for Distributed Systems, established in a partnership between the government and the private sector.
On the environment, we need to see this as an economic challenge and opportunity. The state’s role should be twofold. First, the Government needs to continue to issue binding targets for decarbonisation in key areas and give more targets across different areas of the economy.
The second aspect is to provide, and to help corral, the finance required for every aspect of decarbonisation. This finance will be needed to help ensure that there are very few barriers for individuals, communities and businesses which prevent them transitioning into a low carbon future.
Lubricated by this finance, inventors and innovators will be able to take advantage of the UK’s position as the first major country to turbocharge our approach to net zero and export its technologies across the world. This could be transformative for the UK, and the jobs created across all industries will be created all over the country, at different skill levels. Levelling up to save the planet.
What I have tried to do here is to sketch out a new economic vision for the Conservative Party. We can build on the achievements of the past 30 years by addressing our modern weaknesses. We have every chance of leading in the world in a new type of Conservative economics just as we did in the 1980s. We can achieve it.
This is a keynote speech by Bim Afolami for Bright Blue today. The video of it is here.