A Personal View June 09
On the Loss of Intellectual and Moral Leadership in UK Politics and Economic Policy
I am sure that I am not alone in feeling exasperation about the void of reasoned public discourse on the subjects of political and economic leadership in the UK.
As is the wont of our commentators and operators in these fields they pontificate only on small issues rather than fitting them into a bigger scheme. No doubt the larger landscape is intimidating for them, because it involves questioning their own status quo. Unfortunately this is not forgivable because they claim to be leaders. They seem to lack moral courage, and a plan, both of which leaders should have.
The public’s crisis of confidence extends further than the man who is Prime Minister. It encompasses the entire political elite. The Tories are floating to the top by default, not because they have presented a compelling case for office. These are strong claims to make and so in the course of this paper I shall attempt to set out the manifestations of the problems; to suggest why this has become an issue now; to consider why the electorate increasingly finds its governors intolerable; and finally, to consider how to move forward. For the sake of brevity I shall be making assertions, for which my apologies.
The Manifestations
The manifestations of the problems fall into four categories: political structure; the behaviour of politicians; financial management; and policy development.
The Labour Party introduced various changes to the Constitution. There is no consistency in their approach to the devolution of power, thus citizens in different parts of the UK are treated differently. This is patently unfair and should not continue. Otherwise power in England has been centralised over three decades. The centralisation of power in the hands of the Prime Minister has created an effective elective dictatorship; however enlightened the holder of the office, this is not what parliamentary democracy should deliver. Our current two-party, past-the-post system has caused a focus on the swing voter, a focus which belittles sound policy making; the system also allows the party in power to push through legislation with few hindrances. The reform of the House of Lords is incomplete and so incoherent; the second chamber’s position as a legitimate stabiliser for legislative process has been diminished, and should be replenished, but perhaps in different form.
The behaviour of politicians has been much in the news of late, and no comment on expenses is needed. However, as a recent poll identifies, the public considers this to be merely the tip of the iceberg. Without going so far as to say politicians are dishonest, respondents clearly believe that politicians lack honesty, and that they are self-serving, at least at the national level. We also witness appalling behaviour each week at Prime Minister’s question time: this represents the apogee of the bar room brawl that too often serves for debate in our political firmament. It may not represent the norm in our legislative process, but it is what the electorate witnesses every week. Being able to consider the leaders of our two main parties with derision so regularly is hardly a stimulus for being respectful of politicians, however much we enjoy the hubris. Finally the centralisation of power has neutered the parliamentary process to such a degree that the broadcast media has become, from the time of Margaret Thatcher, the most obvious restraint on power. This pitiable situation is exacerbated by the fact that the broadcast media have to attract an audience, and thus often trivialise debates and force the governments into short termist reactions. Interviews may be trite and contemptible but the evasiveness of politicians, and the lack of coherence in their postulations, is risible. If they do not give the electorate the respect of setting forth their plans clearly and without condescension, they will not engender respect for themselves.
Much contempt has been poured upon Gordon Brown for his management of the national finances, and deservedly so. But it is a bit late. Where were the media and the Opposition before it happened? It was patently obvious for years that the overspending by both government and the electorate was not sustainable. Now that the problem has been identified, where are the proposals for balancing the books, and for future wealth creation? We remain mired in finger-pointing politics, and all our politicians are tainted by a culture of blame.
It is not only financial policy which lacks clear exposition. Where are the clear routes forward for implementing policies on: energy – not just sustainability, but security, future cost, and the balance of payments; defence spending – the case for the Services in theatre and thereafter has been made (not by politicians), but we need to move on from imperial and cold war senses of engagement to a new understanding of the role we can afford; infrastructure – it has improved since, but not necessarily as a function of, privatisation, but much more needs to be done to enable efficient wealth creation; education – state centralisation drives uniformity, while private education thrives on diversity; we need to raise those in the lower strata of academic achievement to greater self-esteem, and this is not achieved by constant comparison with higher intellectual achievers or by trying to fit their skills into an assessment scheme which does not help them prepare for a successful life; demographics – we all know that we will have an ever increasing burden on our health and pension systems so let’s deal with the issues.
Why has this all converged to become an issue now?
The recognition of the UK’s financial difficulties may have been the tipping point for the expression of dismay. Had the economy been stronger, perhaps the disgust about expenses would have been less of an emetic. The combination stimulates consideration of how we come to be in such a mess.
In the UK we have enjoyed a sustained period of economic expansion since the early nineties. Undoubtedly this created a general atmosphere of complacency throughout the economy, not least in Gordon Brown. However this was not wealth creation; it was built upon borrowing to generate consumption, which merely spent tomorrow’s income before it arrived. But I believe that the key bubble that has been burst is that of complacency. As the scales have fallen from our eyes, so the myriad of deficiencies in our governance have appeared.
The centralisation of power allowed complacency to inflate uncontested. We have created an elective dictatorship which has emerged over successive administrations, to the point that we have one of the most centralised forms of government among the democratic nations. It is driven by the combination of: the shift from local to central administration; the discipline of the whips within a two party system, which demands submissiveness to the party to gain preferment; the weakening of the status of the House of Lords; the lack of independent oversight over opaque parliamentary activities; and the erosion of the power of the Bank of England by splitting its responsibilities with the FSA which, while appearing to give the Bank more power, actually entrenched Treasury control. Finally, from 1997, the Tories were in such disarray that they were drifting, and in no position to create credible debate, and barely tried on the key economic issues.
The net outcome of the above is that there seems to have been a widespread loss of a sense of responsibility and accountability. Moreover senior UK politicians are apparently incapable of openly discussing the major issues which affect us today.
Why is the Electorate less tolerant?
We have become the internet generation. From a government’s point of view a dangerous genie has been created, which rejects paternalism. The combination of broader access to higher education, the ability to find more information on more issues than we know what to do with, and the cultural drift towards larger swathes of our society demanding self-determination, causes greater scepticism about the need for government to encroach upon our lives. But the Labour government has slid the tentacles of the State into ever increasing numbers of orifices. While the genie believed that all was well in the state of New Labour all was fine and he remained in his lamp. Now the genie recognises betrayal, and his wrath is emerging.
Tories should not interpret the swings in the current elections as an upsurge in belief that they are better. They are merely the only alternative. If they win office in the next general election, as they surely must, they must deal with the deep-rooted problems, or they will be cast quickly aside. Just look at voter turn-out in recent elections to perceive how much our politicians are valued by the electorate.
How to move forward
The point really is to have ways forward towards clear goals. But our political contenders seem to have no bearings within the world in which the electorate live. They merely spin around each other with centrifugal obsession.
Two core plans are required. The first should create a governmental system, which is transparent, efficient, and both responsive to and acceptable to the Electorate. The test would be subsequent voter participation at elections. This may require a referendum. The second would set out catalysts to generate the preservation and creation of wealth in the UK. No one expects a magic wand to be waved, but we do wish to be shown a credible scheme of improvement.
The System of Government in the UK
PR is not the answer. In my opinion it will encourage opaque compromise. It also tends to preserve the entrenched players in the political elite in immutable coalition. Neither is desirable.
We need transparent government. This requires clear responsibility and accountability, the effective means of holding policy and its implementation to account, and decisions being taken where they are relevant to the electorate.
If we need a written constitution it would be to enshrine a separation of powers. In other practical effects it would be a loss to despatch the nuance of administrative law to the annals of history. The establishing of a Supreme Court later this year is a first step towards the separation of powers, but there is so much more to be done.
We should have fewer, better paid, members of the House of Commons. This might help attract better candidates for office. There should be a fixed term of office. The House of Lords should be renamed; it should be elected on a different cycle to the Commons; all members should be independent; all candidates should be chosen for their expertise in chosen fields of our society in order to better inform and scrutinise the legislative process; this house should have the ability to block, not merely amend, legislation. All members of both houses should have limits upon their tenure.
The internet generation wants local empowerment. Devolution should be completed by encompassing the entire UK, and the powers of each area should be equal. They should have their own revenue raising capability.
The Supreme Court and the National Audit Office should have greater powers of scrutiny over the machinery of the State. Members of these offices should not be political appointees. In combination this might create a structure with a greater sense of responsibility, a clearer probability of effective accountability, and a system of government with some credibility among the electorate.
The Preservation and Creation of Wealth in the UK
This is about more than mere taxing and spending. We need to create wealth, then we can generate the revenues required to finance our aspirations for state investment and other spending. I should make it clear at the outset that I am referring to national wealth rather than individual wealth. That said, I believe there are three main contributors to national wealth: the imagination and drive of individuals; ensuring that everyone is able to contribute; and having the infrastructure which both oils the machinery of wealth creation and enhances the quality of life.
Wealth is created by saving, investing and the generating of new products and services. It is not created by borrowing and spending, whether by the State or the individual. To grow wealth, existing wealth should be substantially preserved.
It should be more difficult for the State to take away wealth. People spend most of their lives amassing what they have, and their families should, within reason, be able to keep it. I believe that inheritance tax should be paid above substantially higher hurdles than today. It should not be scrapped, as the potential establishment of a new “aristocracy” would be undesirable. Taxes on the income of savings should be low. Capital gains should not be taxable. However what constitutes a capital gain should be narrowly defined so that real wealth creation is encouraged. The overall tax system should be simplified, and tax shelters and allowances (other than personal allowances) should be scrapped, as they cause distortion. Taxes should be as low as possible while still enabling a well-funded state sector. A narrow obsession with lower taxes risks destabilising such a balance. The increasing polarity of net income growth over the past decade has been disruptive both financially and socially.
The State should provide the infrastructure for enabling long term wealth creation, and the stabilisers of an advanced society.
Stabilisation includes managing the demography of the UK. We live in an aging society, and we need to ensure that the balance between taxpayers and fiscal dependents does not reach an unsustainable financial position. Fiscal dependents are the young, pensioners, and those on social security. We should encourage older people to remain in employment for longer, and ultimately start paying them their pensions at a later age. We also need to allow managed immigration, as our birth rate in the UK has been too low to maintain the current proportion of taxpayers to dependents. We also need to ensure that a larger numbers of young people have the opportunity to become productive members of the workforce, when their time comes. Youth unemployment is at unacceptably high levels. We all know that these are matters of policy that require development, and that they are sensitive issues, so they should not be swept under the carpet so that unacceptable biases drive the debate. They are openly discussed in other countries.
Clear plans for the infrastructure of the UK should be set out. I include the following: transport; telephony and the internet; energy; housing; and consumer finance. The first four are self-evident, but finance may not be. I believe that consumer finance is a necessary utility. As such it should be protected from that finance which seeks higher returns. I would be in favour of separating consumer banking from investment banking, and regulating them separately. The former should be run conservatively, and not used as a source of funds for more speculative ventures.
Energy policy should not just be about generation and sustainability, but security, future cost, and the balance of payments. Why do politicians fail to discuss that the global flow of fossil fuels is depleting, while long term demand is rising? The effect will be higher prices for heating and driving. UK fossil fuel reserves are depleting even faster; we were a net exporter at the beginning of the decade, we are now importing roughly a quarter of our needs and will be importing most of what we require by 2020. This will affect government revenue and the national balance of payments. Do something!
Healthcare management seems to have improved, but we should be much more open about the fact that the combination of an aging population and advances in medicine and medical technology render the NHS increasingly difficult to finance on the current basis. The polity need to discuss this openly and find an affordable way forward.
State education has been failing many children. More variety in schools, teaching methods and syllabuses should be engendered. Private schools already endorse this, and many are recognised as global leaders in education. We need to raise those in the lower strata of academic achievement to greater self-esteem, and this is not achieved by constant comparison with higher intellectual achievers or by trying to fit their skills into an assessment scheme which does not help them prepare for a successful life.
We can find examples in the private sector of teachers and schools succeeding in lifting academic underachievers into people who contribute considerably to the economy and society because they have developed self esteem and mutual respect. The State sector should be allowed to replicate proven models. In providing greater diversity, and more help to “difficult” children, we may find that the balance of the state sector performs increasingly well. If those who were once “under-achievers” are then able to contribute more to society, they would no longer act as a drift anchor on the economy.
I would favour introducing a system of credits which allow all families to choose their children’s schools. School governors should have the power to direct their schools, free of state direction, but under state supervision. State schools should be allowed to embrace diversity.
Defence spending should be completely reorganised. We can no longer afford to have a policy built upon imperial and cold war senses of responsibility and engagement. The nature of war and keeping the peace has changed, and this should be reflected in how we spend this money. The glorious apparel of the past should be shed in favour of clothing, housing, equipping and nursing the servicemen of today.
Enterprise must be encouraged. Tax preference should be given to businesses before individuals. Carbon taxes should be used as a source of funds. We should find ways to encourage the establishment of new businesses, whether by local entrepreneurs or by inward investment. We need to increase national income by being more productive, not by taxing people more. More government assets and activities could be privatised. This enters the area of public private partnerships. These should be encouraged for the development of our national infrastructure. An efficient infrastructure assists wealth creation because it reduces hassle. It also has the very positive side effect of enhancing the quality of life.
We cannot cut overall taxes before we have set out on this path. But they should not be raised either as to do so would impede economic recovery.
Spending must be reined in. All parties should be describing how they will do it, and it is irresponsible to claim that they will not.
There is so much to do. We need leaders who have the intellect and moral courage to discuss these issues openly. It is interesting that in a country where so many of us abhor our politicians that so many hold President Obama in such high regard.
The absence of coherent debate in national politics requires activism on the part of independent commentators, and coherence on the part of the media in allowing a forum for such debate to become substantiated.
Of course there are think tanks working on ideas, and they should contribute to the debate, but these tend to be party funded, or philosophically driven, with conclusions which are predictably biased, and so easily rejected by other camps. What we need is open-minded common sense.
We are presented with a golden opportunity now to deal with urgent structural reform to our political structure and to our economic infrastructure. We should build a new consensus for renewal from the rubble scattered around us. Where is the leadership for this exceptional opportunity?
June 2009
This report represents the personal views of Simon James, a partner of Gore Browne Investment Management LLP, and should not be taken as reflecting the views of the firm nor of its other partners or staff.