Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science, and his book a University Education is published by Oxford University Press.
The local election results show that the Conservatives facing a very serious challenge – with Labour advancing in the Red wall seats and Liberal Democrats in the Blue Wall. Rishi Sunak has successfully steadied the ship but that, on its own, does not look sufficient to win. The five priorities have brought essential message discipline but, again, they don’t seem to be generating sufficient political impact on their own. Something more is needed. But what?
One of the great advantages of the Conservative tradition is that it is a kind of Mary Poppins bag full of an extraordinary range of policies and principles from which the Party can choose, depending on circumstances. During the long years of Opposition after 1997, I asked the great Denis Thatcher what we needed to do to win again. He replied “Get back to Conservative principles – but don’t ask me what they are.”
One possibility is to offer tax cuts. The Chancellor might have some room for fiscal manoeuvre before the general election, and many in the Party would like to see a cut in the basic rate of income tax. Conservatives are indeed the party of tax cuts – apart from the times when we are the party of tax increases. And to be credible, we would have to show how we were shrinking the state even though, in reality, we are increasing public spending on the biggest programmes of healthcare and pensions which just happen to matter most to older Tory voters.
There is a very different approach which, if anything, us more true to the Conservative tradition – spreading the property-owning democracy. The nation needs to get building more houses. Simon Clarke spoke very persuasively about this on the Today Programme yesterday.
The most important fact about British political economy is that our wealth – houses and pensions – which used to be about three times our national income have now shot up to eight times GDP. This means that acquiring an asset out of income has become very hard indeed. Instead, there is a much more effective way to acquire wealth – inherit it.
The most vivid example of this problem is how hard it is for young people to get started on the housing ladder without the help of the bank of mum and dad. But there is a very similar problem with pensions where it is hard to build up a pension worth as much as the old defined benefit schemes – unless of course you work in the public sector.
Two of Margaret Thatcher’s most resonant and effective policies were council house sales and the sale of shares in privatised industries. Both spread property ownership. But now property ownership among the younger generation is in retreat. And they are retreating from Conservatism as a result.
For housing that means helping with both supply and demand. More houses need to be built. That point to a combination of housebuilding targets and also stronger incentives for communities to accept more housing by much more direct financial rewards to them.
It also means helping young people with the costs of getting started on the housing ladder. Many of them are paying rents higher than the likely costs of a mortgage but they can’t find the deposit to get started. And mortgage regulations are so strict it is hard to borrow money in the way that we Boomers did when we were getting started on the ladder. They need a modest capital grant to help them with the deposit or for some other priority such as education and training. The Resolution Foundation’s Inter-generational Commission proposed a grant of £10,000 when people got to the age of 30 as a way of boosting the assets of the next generation.
Housing is part of a wider agenda to get Britain saving and investing more. Investment, public and private, is needed so that we can go green and get energy security. That means everything from home insulation to charging points for electric vehicles. It also means investing in a much bigger National Grid, as electricity is decarbonised and able to take inputs from many smaller power generators.
As much of this as possible should be privately financed, promoted with suitable incentives. But regardless of whether the spending is public or private, such change involves rebalancing from consumption to investment. In the long run, we are better off as a result – as we would have been this winter had we invested more in home insulation earlier. But pressure on living standards is more acceptable if there is a sense that it is for a worthwhile goal and we are all in it together.
There are risks with this approach. NIMBYs will object to housebuilding targets. Often the objectors say the problem is that there isn’t the supporting investment in infrastructure. Those objections should be tackled by planning for the schools, GP surgeries and transport links that are needed for the extra housing to be truly productive investment. One of best examples of that was New Towns, and it would be great if we proposed some of them in next manifesto.
There is a further tricky problem arising from one of the five priorities: reducing the national debt. We certainly need a fiscal rule but the choice of this one has made public investment vulnerable. It would be better if instead the rule were to balance the current budget and only borrow for capital spend. That would mean that we invest and borrow where it makes sense as we are endowing the country with more productive investment.
Covid revealed the need for of resilience in our health system. Russia’s attack on Ukraine has shown the importance of energy security. Our economic performance is weak because business investment is too low. And our children are losing out as we aren’t building the houses we need. The Integrated Review and its recent Refresh, two of the most important policy documents of the past few years, have shown how important it is to build greater resilience facing threats which have emerged over the past decade. The common theme is the need to invest more. That is how to rise to the national challenges we face.