The letter sent by Kwasi Kwarteng, the Chancellor of the Exchequer, to Andrew Bailey, the Governor of the Bank of England, on 22 September 2022.
Category: Economy
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Kwasi Kwarteng – 2022 Mini Budget Statement in the House of Commons
The statement made by Kwasi Kwarteng, the Chancellor of the Exchequer, in the House of Commons on 23 September 2022.
Mr Speaker,
Let me start directly with the issue most worrying the British people – the cost of energy.
People will have seen the horrors of Putin’s illegal invasion of Ukraine.
They will have heard reports that their already-expensive energy bills could reach as high as £6,500 next year.
Mr Speaker, we were never going to let this happen.
The Prime Minister has acted with great speed to announce one of the most significant interventions the British state has ever made.
People need to know that help is coming.
And help is indeed coming.
We are taking three steps to support families and businesses with the cost of energy.
Firstly, to help households, the Energy Price Guarantee will limit the unit price that consumers pay for electricity and gas.
This means that for the next two years, the typical annual household bill will be £2,500.
For a typical household, that is a saving of at least £1,000 a year, based on current prices.
We are continuing our existing plans to give all households £400 off bills this winter.
So taken together, Mr Speaker, we are cutting everyone’s energy bills by an expected £1,400 this year.
And millions of the most vulnerable households will receive additional payments, taking their total savings this year to £2,200.
Secondly, as well as helping people, we need to support the businesses who employ them.
The Energy Bill Relief Scheme will reduce wholesale gas and electricity prices for all UK businesses, charities, and the public sector like schools and hospitals.
This will provide a price guarantee equivalent to the one provided for households, for all businesses across the country.
Thirdly, energy prices are extremely volatile, erratically rising and falling every hour.
This creates real risks to energy firms who are otherwise viable businesses.
Those firms help supply the essential energy needed by households and businesses.
So to support the market, we are announcing the Energy Markets Financing Scheme.
Delivered with the Bank of England, this scheme will provide a 100% guarantee for commercial banks to offer emergency liquidity to energy traders.
Mr Speaker,
The consensus amongst independent forecasters is that the Government’s energy plan will reduce peak inflation by around 5 percentage points.
It will reduce the cost of servicing index-linked government debt and lower wider cost of living pressures.
And it will help millions of people and businesses right across the country with the cost of energy.
Let no one doubt: during the worst energy crisis in generations, this Government is on the side of the British people.
The Bank of England are taking further steps to control inflation, acting again only yesterday.
I can assure the House, this Government considers the Bank of England’s independence to be sacrosanct.
And we remain closely coordinated, with the Governor and myself speaking twice a week.
But Mr Speaker,
High energy costs are not the only challenge confronting this country.
Growth is not as high as it should be.
This has made it harder to pay for public services, requiring taxes to rise.
In turn, higher taxes on capital and labour have lowered returns on investment and work, reducing economic incentives and hampering growth still further.
This cycle has led to the tax burden being forecast to reach the highest levels since the late 1940s – before even Her Late Majesty acceded to the throne.
We are determined to break that cycle.
We need a new approach for a new era, focused on growth.
Our aim, over the medium term, is to reach a trend rate of growth of 2.5%.
And our plan is to expand the supply side of the economy through tax incentives and reform.
That is how we will deliver higher wages, greater opportunities, and crucially, fund public services, now and into the future.
That is how we will compete successfully with dynamic economies around the world.
That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth.
So as a Government, we will focus on growth – even where that means taking difficult decisions.
None of this is going to happen overnight. But today we are publishing our Growth Plan that sets out a new approach for this new era, built around three central priorities:
Reforming the supply-side of the economy.
Maintaining responsible approach to public finances
And cutting taxes to boost growth.
Mr Speaker,The UK has the second-lowest debt to GDP ratio of any G7 country.
In due course, we will publish a Medium-Term Fiscal Plan, setting out our responsible fiscal approach more fully.
Including how we plan to reduce debt as a percentage of GDP over the medium term.
And the OBR will publish a full economic and fiscal forecast before the end of the year, with a second to follow in the new year.
Fiscal responsibility remains essential for economic confidence, and it is a path we remain committed to.
Today we are publishing costings of all the measures the Government has taken.
And those costings will be incorporated into the OBR’s forecast in the usual way.
The House should note that the estimated costs of our energy plans are particularly uncertain, given volatile energy prices.
But based on recent prices, the total cost of the energy package, for the six months from October, is expected to be around £60bn.
We expect the cost to come down as we negotiate new, long term energy contracts with suppliers.
And, in the context of a global energy crisis, it is entirely appropriate for the government to use our borrowing powers to fund temporary measures in order to support families and businesses.
That’s what we did during the Covid-19 pandemic.
A sizeable intervention was right then…and it is right now.
The heavy price of inaction would have been far greater than the cost of these schemes.
Mr Speaker,
We are at the beginning of a new era.
As we contemplate this new era, we recognise that there is huge potential in our country.
We have unbounded entrepreneurial drive.
We have highly skilled people.
We have immense global presence in sectors like finance, life sciences, technology, and clean energy.
But Mr Speaker, there are too many barriers for enterprise. We need a new approach to break them down. That means reforming the supply side of our economy.
Over the coming weeks, my Cabinet colleagues will update the House on every aspect of our ambitious agenda.
Those updates will cover: the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.
And Mr Speaker, we start this work today.
An essential foundation of growth is infrastructure.
The roads, railways, and networks that carry people, goods, and information all over our country.
Today, our planning system for major infrastructure is too slow and fragmented.
The time it takes to get consent for nationally significant projects is getting slower, not quicker, while our international competitors forge ahead.
We have to end this.
We can announce that in the coming months, we will bring forward a new Bill to unpick the complex patchwork of planning restrictions and EU-derived laws that constrain our growth.
We will streamline a whole host of assessments, appraisals, consultations, endless duplications, and regulations.
We will also review the government’s business case process to speed up decision making.
And today, we are publishing a list of infrastructure projects that will be prioritised for acceleration, in sectors like transport, energy, and telecoms.
And, to increase housing supply and enable forthcoming planning reforms, we will also increase the disposal of surplus government land to build new homes.
Mr Speaker, we are getting out of the way to get Britain building.
Mr Speaker,
One of the proudest achievements of our government is that unemployment is at the lowest level for nearly fifty years.
But with more vacancies than unemployed people to fill them, we need to encourage people to join the labour market.
We will make work pay by reducing people’s benefits if they don’t fulfil their job search commitments.
We’ll provide extra support for unemployed over-50s.
And we’ll ask around 120,000 more people on Universal Credit to take active steps to seek more and better paid work, or face having their benefits reduced.
And, Mr Speaker,
At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives.
Other European countries have Minimum Service Levels to stop militant trade unions closing down transport networks during strikes.
So we will do the same.
And we will go further.
We will legislate to require unions to put pay offers to a member vote, to ensure strikes can only be called once negotiations have genuinely broken down.
Of course, Mr Speaker, to drive growth, we need new sources of capital investment.
To this end, I can announce that we will accelerate reforms to the pension charge cap so that it will no longer apply to well-designed performance fees.
This will unlock pension fund investment into UK assets and innovative, high growth businesses.
It will benefit savers and increase growth.
And, we will provide up to £500 million to support new innovative funds and attract billions of additional pounds into UK science and technology scale-ups.
And Mr Speaker, this brings me to the cap on bankers’ bonuses.
A strong UK economy has always depended on a strong financial services sector.
We need global banks to create jobs here, invest here, and pay taxes here in London, not Paris, not Frankfurt, not New York.
All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.
It never capped total remuneration, so let’s not sit here and pretend otherwise.
So we’re going to get rid of it.
And to reaffirm the UK’s status as the world’s financial services centre, I will set out an ambitious package of regulatory reforms later in the Autumn.
But Mr Speaker,
To support growth right across the country, we need to go further, with targeted action in local areas.
So today, I can announce the creation of new investment zones.
We will liberalise planning rules in specified agreed sites, releasing land and accelerating development.
And we will cut taxes.
For businesses in designated tax sites, for ten years, there will be:
Accelerated tax reliefs for structures and buildings.
And 100% tax relief on qualifying investments in plant and machinery.
On purchases of land and buildings for commercial or new residential development, there will be no stamp duty to pay whatsoever.
On newly occupied business premises, there will be no business rates to pay whatsoever.
And if a business hires a new employee in the tax site, then on the first £50,000 they earn…
…the employer will pay no National Insurance whatsoever.
That is an unprecedented set of tax incentives for business to invest, to build, and to create jobs right across the country.
I can confirm for the House that we’re in early discussions with nearly 40 places like Tees Valley, the West Midlands, Norfolk and the West of England to establish Investment Zones.
And we’ll work with the devolved administrations and local partners to make sure Scotland, Wales and Northern Ireland will also benefit, if they are willing to do so.
If we really want to level up, Mr Speaker – we have to unleash the power of the private sector.
And now, Mr Speaker, we come to tax – central to solving the riddle of growth.
The tax system is not simply about raising revenue for public services, vitally important though that is. Tax determines the incentives across our whole economy.
And we believe that high taxes reduce incentives to work, they deter investment and they hinder enterprise.
As the Prime Minister has said, we will review the tax system to make it simpler, more dynamic, and fairer for families.
And we are taking that first step today.
Mr Speaker,
The interests of businesses are not separate from the interest of individuals and families.
In fact, it is businesses that employ most people in this country.
It is businesses that invest in the products and services we rely on.
Every additional tax on business is ultimately passed through to families through higher prices, lower pay, or lower returns on savings.
So I can therefore confirm that next year’s planned increase in Corporation Tax will be cancelled.
The UK’s corporate tax rate will not rise to 25% – it will remain at 19%.
We will have the lowest rate of Corporation Tax in the G20.
This will plough almost £19bn a year back into the economy.
That’s £19bn for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.
I’ve already taken steps elsewhere in this statement to support financial services, so the Bank Surcharge will remain at 8%.
But, Mr Speaker, we will do more to encourage private investment.
The Annual Investment Allowance, which gives 100% tax relief on investments in plant and machinery, will not fall to £200,000 as planned…
It will remain at £1m.
And it will do so permanently.
Our duty is to make the UK one of the most competitive economies in the world – and we are delivering.
And Mr Speaker,
We want this country to be an entrepreneurial, share-owning democracy.
The Enterprise Investment Scheme. The Venture Capital Trusts. We will extend them beyond 2025.
The Seed Enterprise Investment Scheme. Company Share Option Plans. We will increase the limits to make them more generous.
Crucial steps on the road to making this a nation of entrepreneurs.
Mr Speaker,
For the tax system to favour growth, it needs to be much simpler.
I’m hugely grateful to the Office of Tax Simplification for everything they have achieved since 2010.
But instead of a single arms-length body which is separate from the Treasury and HMRC, we need to embed tax simplification into the heart of Government.
That is why I have decided to wind down the Office of Tax Simplification, and mandated every one of my tax officials to focus on simplifying our tax code.
To achieve a simpler system, I will start by removing unnecessary costs for business.
Firstly, we will automatically sunset EU regulations by December 2023, requiring departments to review, replace or repeal retained EU law.
This will reduce burdens on business, improve growth, and restore the primacy of UK legislation.
Mr Speaker, we can also simplify the IR35 rules – and we will.
In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.
So, as promised by My RHF the Prime Minister, we will repeal the 2017 and 2021 reforms.
Of course, we will continue to keep compliance closely under review.
Mr Speaker,
Britain welcomes millions of tourists every year, and I want our high streets and airports, our ports and our shopping centres, to feel the economic benefit.
So we have decided to introduce VAT-free shopping for overseas visitors.
We will replace the old paper-based system with a modern, digital one.
And this will be in place as soon as possible.
This is a priority for our great British retailers – so it is our priority, too.
Our drive to modernise also extends to alcohol duties.
I have listened to industry concerns about the ongoing reforms.
I will therefore introduce an 18-month transitional measure for wine duty.
I will also extend draught relief to cover smaller kegs of 20 litres and above, to help smaller breweries.
And, at this difficult time, we are not going to let alcohol duty rates rise in line with RPI.
So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.
Now, Mr Speaker, we come to the question of personal taxation.
It is an important principle that people should keep more of the money they earn. And it is good policy to boost the incentives for work and enterprise.
Yesterday, we introduced a Bill that means the Health and Social Care Levy will not begin next year… it will be cancelled.
The increase in Employer National Insurance Contributions and dividends tax… will be cancelled.
And the interim increase in the National Insurance rate, brought in for this tax year…will be cancelled.
And this cut will take effect from the earliest possible moment, November 6th.
Reversing the Levy delivers a tax cut for 28 million people, worth, on average, £330 every year;
A tax cut for nearly a million businesses;
And I can confirm: the additional funding for the NHS and social care services will be maintained at the same level.
Mr Speaker,
I have another measure.
Today’s statement is about growth.
Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.
So to support growth, increase confidence, and help families aspiring to own their own home, I can announce that we are cutting stamp duty.
In the current system, there is no stamp duty to pay on the first £125,000 of a property’s value.
We are doubling that – to £250,000.
First time buyers currently pay no stamp duty on the first £300,000.
We’re increasing that threshold as well, to £425,000.
And we’re going to increase the value of the property on which first time buyers can claim relief, from £500,000 to £625,000.
The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether.
This is a permanent cut to stamp duty, effective from today.
And Mr Speaker,
I have another measure.
High tax rates damage Britain’s competitiveness.
They reduce the incentive to work, invest, and start a business.
And the higher the tax, the more ways people seek to avoid them, or work elsewhere or simply work less…
…rather than putting their time and effort to more creative and productive ends.
Take the additional rate of income tax.
At 45%, it is currently higher than the headline top rate in G7 countries like the US and Italy.
And it is higher even than social democracies like Norway.
But I’m not going to cut the additional rate of tax today, Mr Speaker.
I’m going to abolish it altogether.
From April 2023, we will have a single higher rate of income tax of 40 per cent.
This will simplify the tax system and make Britain more competitive.
It will reward enterprise and work.
It will incentivise growth.
It will benefit the whole economy and whole country.
And, Mr Speaker, after all, this only returns us to the same top rate we had for 20 years.
And that’s not all.
I can announce today that we will cut the basic rate of income tax to 19p in April 2023 – one year early.
That means a tax cut for over 31 million people in just a few months’ time.
This means we will have one of the most competitive and pro-growth income tax systems in the world.
Mr Speaker,
For too long in this country, we have indulged in a fight over redistribution.
Now, we need to focus on growth, not just how we tax and spend.
We won’t apologise for managing the economy in a way that increases prosperity and living standards.
Our entire focus is on making Britain more globally competitive – not losing out to our competitors abroad.
The Prime Minister promised that this would be a tax-cutting government.
Today, we have cut stamp duty.
We have allowed businesses to keep more of their own money to invest, to innovate, and to grow.
We have cut income tax and national insurance for millions of workers.
And we are securing our place in a fiercely competitive global economy…
…with lower rates of corporation tax…
…and lower rates of personal tax.
We promised to prioritise growth.
We promised a new approach for a new era.
We promised, Mr Speaker, to release the enormous potential of this country.
Our Growth Plan has delivered all those promises and more.
And I commend it to the House.
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Liz Truss – 2022 Keynote Speech on Supporting Businesses
The speech made by Liz Truss, the Prime Minister, in New York on 21 September 2022.
We have been through a very difficult fortnight in the UK, Her Majesty The Queen was much loved and there’s been a huge outpouring of grief, both in the United Kingdom and around the world. To many of us she represented not just modern Britain but the modern world, taking over just after the Second World War and serving with distinction for 70 years – almost as long as the UN has been running.
We now enter a new era. What has been very heart warming is the way people have opened their arms to our new King, King Charles III. I’ve been doing sessions around the UK – in Belfast, Edinburgh and Cardiff. The streets are lined welcoming the new King and the UK is moving into a new era.
I thought it was very important that I came to the UN General Assembly this year, because we are facing such a difficult international situation, with the war in Ukraine started by Vladimir Putin. We’ve heard more sabre rattling from him this morning. But also we need to get the global economy back on its feet after Covid, and really ensure democracy prevails.
To me, at the heart of that is making sure that we have a stable economy as we come out of this very difficult period. And to me, as Prime Minister, I want to make sure that we have a strong economy, a growing economy, a dynamic economy, that we are a country that is pro-business, pro attracting investment into our economy and also focused on long term economic security.
I think one of the things we’ve learned from the past few months is that when countries are dependent on authoritarian regimes, that can be used as a weapon against them. That is a position we should never find ourselves in again. That is why having a strong economy is so vital for the future of the United Kingdom.
This week the Chancellor will be doing his fiscal statement. I can’t pre-empt what he’s going to say, but what I can say – and I outlined this during the leadership campaign – is that we want lower, simpler taxes in the UK to incentivise investment, to get more businesses going in the UK. But also to encourage more people to go into work. We do, following Covid, have a significant number of people that are economically inactive. We want to encourage more of them to go into work with a tight labour market, get the right skills, as well as being a country that attracts economic investment. So we won’t be raising corporation tax, as was planned. We’ll be reversing the National Insurance rises which took place earlier this year. And the Chancellor will be announcing various other simplification measures.
While this is just the start, our long-term plan is to simplify Britain’s taxes and to make us a better place to invest and be unashamedly pro-business. And that’s every kind of business – whether it’s life sciences, whether it’s technology, whether it’s financial services. We want the City to be the most competitive place for financial services in the world, and we see that as a key part of the levelling up agenda, because when we unblock capital, that capital will be used across the UK to make every industry become more productive and competitive.
So alongside the tax statement that the Chancellor will lay out, he’ll also lay out a series of supply side reforms to make our economy more productive over the long-term, in areas like financial services. Dealing with Solvency II, dealing with MiFID, in areas like infrastructure – getting roads built, getting broadband built, getting mobile phone masts built so you can get reception right across Britain. Reforming regulations so that when business set up they’re not hit by mountains of red tape, they’re able to get on to growing the country. We’re also going to be introducing low tax investment zones across the country, in parts that are left behind. It’s going to be easier to get things done in those zones. The Chancellor will be making that announcement on Friday.
Today we’ve followed up on our energy package which we announced a few weeks ago. What we’re doing with our energy package is making sure households are able to get through this winter and next winter without facing gigantic bills, with an energy price guarantee. What the government is essentially doing is making sure the wholesale price of energy is passed through to the consumer and making sure that those bills are not more than £2,500.
We’ve also got a business scheme which is going to last for six months to help businesses get through. And the reason we felt it was right to intervene in this way is because we are dealing with a long-term failure of energy policy – we should have made sure Britain was not subject to the global energy price and the various fluctuations. We didn’t do that, we didn’t build enough nuclear power stations 20 years ago.
There’s a Chinese proverb which says the best time to plant a tree is 25 years ago, but the second best time is today. So at the same time as the short term intervention – and this short term intervention is projected to reduce inflation by up to five percent, as well as increase economic growth by up to one percent – as well as that short term intervention we’re now working on entering long-term energy supply contracts with friendly countries, including with the United States. As well as exploiting more of our North Sea gas reserves, getting on with the need to build nuclear power stations, getting on with offshore wind, so that by 2040 the UK will be a net energy exporter. We will never be in this situation again.
I finally wanted to say, on the subject of investment and trade, I’m proud that when I was Trade Secretary we set up the Office for Investment. I think it has done a good job, we want to turbocharge its work and make sure we are providing investors into the UK the best possible service, cracking through any obstacles that might be in the way of successful investment projects. We’re also planning another investment summit next October, and I think I met many of you at the last investment summit.
And finally on trade, we’re not currently negotiating a trade deal with the US – the US isn’t negotiating a trade deal with anyone at the moment – but we are open to negotiating a trade deal when the administration decide that’s what they want to do. However we’re also in negotiations with India on a trade deal which we expect to complete this year, which brings huge opportunity in areas like technology, areas like manufactured goods. We’re also planning to accede to the Trans-Pacific Partnership which will give the UK much more access to Pacific markets as well.
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Kwasi Kwarteng – 2022 Comments on Becoming Chancellor
The comments made by Kwasi Kwarteng, the Chancellor of the Exchequer, on 7 September 2022.
We face extraordinary economic challenges in the coming weeks and months and I know that families and businesses across the UK are worried.
The Prime Minister and I are committed to taking decisive action to help the British people now, while pursuing an unashamedly pro-growth agenda.
We need to be decisive and do things differently. That means relentlessly focusing on how we unlock business investment and grow the size of the British economy, rather than how we redistribute what’s left.
With a strong and resilient economy, we deliver more jobs, higher wages, and raised living standards – all while reducing our debt-to-GDP ratio in a fiscally sustainable way.
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Alister Jack – 2022 Comments on Scottish GDP Figures (August 2022)
The comments made by Alister Jack, the Secretary of State for Scotland, on 31 August 2022.
We are facing unprecedented global challenges, but our economy showed huge resilience emerging from the pandemic and I feel sure we will come through these uncertain times too.
Supporting families and businesses is our priority. A quarter of all UK households will receive £1200 of direct help as part of our £37 billion package to assist the most vulnerable, with the first cost of living payments already paid out to over seven million people.
Our steps to support businesses include slashing fuel duty, reducing employer National Insurance and freezing alcohol duty which helps pubs and our hospitality industry. All this is in addition to the Scottish Government receiving a record £41 billion per year settlement for the next three years.
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Oliver Letwin – 2002 Speech to Conservative Spring Forum
The speech made by Oliver Letwin to Conservative Spring Forum on 24 March 2002.
Almost every day our newspapers and televisions carry stories of horrific crimes.
Almost every day we hear the anguished voices of these victims of crime asking what is to be done.
The failure to tackle crime has given rise to pessimism and despair.
I understand that pessimism but I do not share it.
Sometimes in life you are privileged to witness astonishing achievements. Two weeks ago I had that privilege.
I visited a city. I met individuals who were determined to transform the life of that city by drastically cutting crime. I visited a police force whose morale was second to none.
A city whose Mayor and Commissioner of Police had the political vision – against the prevailing consensus at the time – to put the police on every street and to ensure that they became custodians of their neighbourhoods.
A city which has given the streets back to its citizens by dealing with every manifestation of disorder, whether it be simple graffiti, youth offending or drugs.That city was New York.
New York used to be like many parts of our cities.
Places where street crime, social disorder and violence has become the norm rather than the exception. Places where criminals are not often brought to justice. Places where the police are demoralised because of interference from politicians and bureaucrats.
It was not always like this in Britain. Violent crimes were not unknown in 1956 when I was born. But they were not so frequent that the papers had a fresh tale of terror for every edition. It was not the case that children carried knives or that drug deals were done in the playground. Women were not dragged from their vehicles by carjackers. No one even knew what carjacking was. Indeed there was little fear of theft of any kind. When a man who later became my neighbour on the Wandsworth Road in London left money for the butcher and the baker in a drawstring bag hanging from a latch, it was not stolen and he didn’t expect it to be stolen.
Something has changed in our society over my lifetime. When I was born, there were 68,000 police officers and less than 500,000 crimes a year. Now there are 127,000 police officers and 5 million crimes a year.
There are those that assure us that the tide has now turned and use the survey statistics to make their case. But most people in this country do not believe the survey statistics. Most people think street crime is rising. And the statistics for reported crime suggest they are right. The Home Office itself tells us that:
· The number of young people committing serious crimes, including murder and grievous bodily harm, has almost doubled in last seven years.
· Gun crime has trebled in London during the past year and is soaring in other British cities.
· Crimes involving knives have also trebled in London in the past year and they too are increasing in other British cities.These figures tell us something that is true about the everyday lives of millions of people: that life-shattering violence is not unthinkable, that violence has become the common currency of crime and that the fear of crime lies around every corner.
But the public aren’t just afraid. They are angry and they have every right to be so.
Government has many duties and the first of these is to protect the public.
My opposite number, the Home Secretary – to do him justice – does understand that we no longer feel protected. But what is he doing in response?
He is trying to take power to control every police force in Britain from a desk in Whitehall.
Presumably, he imagines that efficiency will be improved by the Home Office – the Home Office, which has given us an Immigration and Nationality Department that can’t process applications faster than the average snail; an asylum system that is, by his own admission – in a state of chaos; and a youth justice system with appallingly high re-offending rates.
He threatens to sack the Commissioner of the Metropolitan Police, and engages upon a damaging, divisive and demoralising conflict with the police service. Five thousand police officers arrive to protest outside Parliament and, for the first time in living memory, policemen begin to ask for the right to strike.
I might have suggested to him that this is a time to pick a fight with the criminals, not with the police. But I don’t need to – because he has noticed this for himself.
We know he has noticed, because he and the Prime Minister have held a ‘summit’. This last week. Very impressive. An initiative. Very impressive. So, of course, were the last 29 initiatives taken by Mr Blunkett since he became Home Secretary.
Let’s hope this one will be different from the rest. Let’s hope this one will actually work.
But I fear that the chances are slim. Why? Because Mr. Blunkett is the Newton of modern criminal justice policy. Newton told us that, for every action, there is an equal and opposite reaction.
In Mr. Blunkett’s case, it can truly be said that, for each initiative, there is an equal and opposite initiative.
So the day after the summit, focusing on street crime, what did the Home Secretary do? He announced that he was not able to find prison places for the people whom the police were going to arrest and the courts were going to convict.
And he told us he had discovered a brilliant device for solving the problem. He was going to let a large additional number of existing prisoners out early on electronic tags.
What was the message to potential criminals? Just be sure that, if you intend to engage in crime, you wait until my prisons are full. Then I guarantee you’ll be in and out in a trice!
But perhaps we shouldn’t worry too much. Because, a few days before the summit, the Home Secretary had already made sure that not too many people would be arrested.
What was his brilliant wheeze that week? What was that week’s ‘initiative’? It was to require every police officer to issue a report every time someone is stopped on the street.
How will that cut bureaucracy and make the police more effective at fighting street crime? I have to admit, I don’t know. Alas, Mr. Blunkett’s junior Minister, Mr. Denham, didn’t know either when I asked him in the House of Commons.
Thousands of police officers don’t know either.
But I can tell you who does know. The boys in the gangs know. They know they are not likely to be stopped, because the police officer stopping them will have to spend most of the morning handing out notices to every member of the gang.
So my message to the Home Secretary is this. “David, calm down, slow down. Your heart is in the right place. But you can’t cure street crime in this country with a thousand incoherent and conflicting initiatives. You can’t cure it by alienating the police or trying to control this all from a desk in Whitehall. Time is running out. We have a crisis of street crime on our hands. To tackle it, we need a coherent programme, calmly developed, and carefully implemented.”
Now, you will ask me: “what is our programme?” And that is why I have been beginning to develop a coherent programme for Conservative policy on crime over the last few months.
Back in January I delivered a speech called Beyond the Causes of Crime. It sets the agenda for everything the Conservative Party hopes to achieve on the issue of law and order.
When the Prime Minister spoke about being tough on crime and tough on the causes of crime, he too was hoping to set an agenda, and in many ways he succeeded. But the time has come to start looking beyond the causes of crime. We think it is better to find out what causes the opposite of crime – in other words those patterns of decent, friendly, civilised behaviour that make for what I call the neighbourly society.
We believe that the neighbourly society is the most important defence we have against crime. A neighbourly society is built upon strong and supportive relationships within families, between neighbours and throughout the wider community. A united, concerned and vigilant community not only guards against the attacks of the established criminal, but also turns young people away from the path of crime.
But what chance does the neighbourly society have when the young learn that thuggery goes unpunished while good people live in fear? How can we expect communities to form and flourish when the streets are overrun by vandals and drug dealers? We need to understand crime and community as two opposing forces. Crime has weapons at its disposal above all, violence and the threat of violence. In the face of such a threat the peaceful community can only retreat, ceding more ground to the criminal, exposing young people to values wholly opposed to those of the neighbourly society. Thus neighbourhoods decay; the young are corrupted; people who can, get out; and people who can’t, live blighted lives. All this, because decent people are afraid.
Crime isn’t just about the headline offences of rape and murder, or even the more common offences of mugging and burglary.
It is about the everyday crimes, conveniently filed away under the term ‘social disorder’: graffiti, vandalism, petty theft, fly tipping, drug dealing, intimidation, bullying, racial abuse, the corrupting influence of gangs, and the underlying, but entirely viable, threat of violence against anyone who stands up to the wreckers.
Yes, of course, people do fear the headline crimes, but in many neighbourhoods there is another kind of fear, closer to despair, born of the knowledge that we must limit our lives or become victims anyway; that the street is owned by the criminal, not by the citizen; that vandals can do what they will, even if everyone knows who they are; that thugs may torment their neighbours with only retaliation guaranteeing a decisive police response; that the gang is a stronger influence on our children than the school; that in the frontline against fear no one is on our side; that we are right to be afraid.
I have spoken of the struggle between crime and community. It is a struggle that the community is losing and the evidence of defeat can be seen most starkly in Britain’s poorest neighbourhoods. There is something desperately wrong with our society when the people we put in the front line against fear are those least able to stand up to the thugs – the poor, the very old and the very young. They need some one to fight for them, not just holding the line against fear, but taking back the ground lost to the forces of disorder.
Who will take on this role? We believe it must be the police.
What we want is the kind of policing that takes back the streets from the muggers and the drug dealers and makes them safe for the decent, law-abiding people of this country. I call this neighbourhood policing and it is the foundation on which we will rebuild the neighbourly society.
This is not just a dream. It can be done. And the reason I can be so sure is because it has been done. Not in this country, of course. But in America, where city after city has declared war on social disorder of all kinds.
Two weeks ago, when I was in New York as the guest of the NYPD, what did I see? I saw policemen walking the streets. I saw patrol cars, which patrol small areas on a continuous, 24-hour basis. I saw the teams available to move in behind the beat-cops and the patrols to tackle crime on the street. I saw how week-by-week, street-by-street mapping of crime makes transparent where and when crime is being committed, and forces policemen at all levels – right up to Chief Constable level – to produce timely, effective strategies for dealing with street crime. I saw how the Police Department and other agencies tackle quality of life issues as well as crime. I saw a criminal justice system that is based on a sense of urgency.
Does it work? The figures speak for themselves. Over 9 years, murder in New York has been reduced by 80%; robbery, burglary and car theft by over 70%; theft by just under 50% and rape by just under 40%. Across these crimes as a whole, the reduction is 60% since the new methods were introduced.
You are now five times more likely to be the victim of crime in London than in New York, and twice as likely to be robbed or mugged. New York is now a noticeably safer and more pleasant place to live in than London.
Why isn’t our government bringing about the same transformation over here? Because, true to form, they want to do the whole thing themselves. Instead of leading from the front, David Blunkett wants to run every police force in the land from his desk. It won’t work. Reform isn’t about micro-management by politicians, bureaucrats and spin-doctors, it’s about setting public service professionals free to do the job they were always meant to do. The tragedy of New Labour is that they cannot grasp this truth.
Neighbourhood policing is critical. But it is not enough. We believe that the criminal justice system needs to change. The Commissioner of the Metropolitan Police was right. There is not much point in catching criminals, if it takes months to conduct trials and if they are bailed back onto the streets to commit more crime during those months. We need to find means of instilling a sense of urgency into our criminal justice system.
Our prisons are another problem. 58 per cent of all prisoners are caught re-offending within two years of release. For prisoners under the age of 21, the record is much worse. 75 per cent of all young offenders sentenced to custodial sentences are caught re-offending within two years.
These figures are simply unacceptable in a civilised society. How can we accept that a young person, once a criminal, is always a criminal? How can we accept that level of failure? How will we ever have safe streets and a neighbourly society if we continue to accept it?
In the next few months, Conservatives will be bringing forward radical proposals for reform of the youth justice system – proposals designed to take young criminals off the conveyor belt to crime.
But we also need radical proposals to prevent young people getting onto the conveyor belt in the first place.
To do that, we have to have effective neighbourhood policing – and a fast, effective court system. We have to break up the gangs when they are committing crime, and we have to prove to young people that crime can and will be stopped in its tracks. We have to clean up the neighbourhoods in which graffiti, fly-tipping and vandalism have reduced the quality of life to a level where crime seems natural.
But these things are not sufficient. We also have to build upon the work that Michael Howard began when he was Home Secretary. We have to make a reality of co-operation between the police, the schools, the local authorities, the Drug Advisory Service and other agencies, to spot the youngsters at most risk of becoming criminals, and to intervene effectively before they get onto the conveyor belt to crime.
Nor will the state be able to do everything that needs doing.
A great part of the heat of the day will have to be borne by volunteers, by charities, by what Douglas Hurd called ‘active citizens’. Conservatives believe in active citizenship. Many people in this hall are the active citizens, the volunteers, the people who support the charities that are preventing young people from joining the conveyor belt to crime.
In the next few months, as we come forward with specific policy proposals on neighbourhood policing and reform of the criminal justice system, we will also bring forward specific policies on the voluntary sector, to widen and deepen voluntary effort – to lead our young people away from the conveyor belt to crime.
Our work in this Parliament has barely begun. We have much to learn, and much to study. We are conscious of the magnitude of the task.
But I make this pledge to you today. We will go on thinking and go on working. By the time that we come to the next election, we will go into that election with a coherent, developed, long-term programme to fight street crime in this country, and to rescue our streets for the decent citizens of this country.
Only with such a programme can we hope to achieve a neighbourly society in Britain. Only with such a programme can we hope to achieve a Conservative Government in Britain. It is our ambition and our intention, to achieve both of these goals.
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Michael Howard – 2002 Speech at the Centre for Policy Studies
The speech made by Michael Howard, the then Shadow Chancellor of the Exchequer, on 12 April 2002.
May I begin by expressing my gratitude to the Centre for Policy Studies for allowing me to give this, the second of a series of speeches on the framework of economic policy, at the Centre. The Centre has, of course, a long and distinguished history of offering a forum to Conservative economic policy makers. I am honoured to be following in that tradition this morning.
Last month, I made the first of this series of speeches at the Institute of Public Policy Research which is, if not exactly a sister organisation of the CPS, then perhaps a cousin across the water.
In that speech I made three points. First, that the current Government’s approach to monetary policy is an evolution of the policy that the Conservatives began to put in place in the 1990’s and not, as the Government maintains, a decisive break with the past. Secondly, that the transfer of responsibility for setting interest rates to the Monetary Policy Committee of the Bank of England has been a successful further stage in that policy, for which the Chancellor deserves credit. And thirdly, that that evolution must be maintained by implementing even greater objectivity and accountability in framing monetary policy.
My main message was that, in monetary policy at least, there is now a very considerable degree of economic consensus. That consensus, and the stability and continuity which spring from it in economic affairs, is greatly to the advantage of our economy and is a matter for celebration.
Today I want to talk about the framework for fiscal policy. Here too there are some points of consensus and here too that is to be welcomed. Unfortunately, however, the scope for consensus is somewhat more limited in this area for reasons which I hope to make clear in the course of this speech.
In terms of short-term economic management, of course, monetary policy is a much more appropriate tool than fiscal policy. Fiscal policy, however, has a very important and powerful influence on the economy’s medium and long-term performance. And it must be conducted in a manner that supports the work of the central bank in running monetary policy directed at achieving an inflation target.
This leads to one clear and rather obvious difference between the framework for monetary policy and the framework for fiscal policy. While the task of short-term economic management based on monetary policy is now broadly apolitical and the responsibility of the Bank of England’s Monetary Policy Committee, the conduct of fiscal policy remains clearly the political responsibility of the Chancellor of the Exchequer.
But first, I perhaps ought to make clear that there is one area of fiscal policy which I shall not cover at any length or in any detail this morning. I have already set out my firm belief in the proposition that, other things being equal, low tax economies are best. They are, in general, the most dynamic economies, the most innovative economies and the economies which do most to enhance the material welfare of the people who live and work in those economies. Other things are not, however, always equal. There are from time to time moments in a nation’s economic history when other things have to take priority. As I have also said before the present crisis which we face in our public services is, I believe, one such moment. This does not mean that, as a nation, we should pour endless amounts of taxation into the bottomless pits of unreformed public services. It does mean that the public services must be put first and that the provision of the resources which are necessary in order to meet the current crisis may have to take priority over tax cuts.
But today I intend to concentrate on the Government’s approach to the framework for fiscal policy and some of the key principles which Governments should apply in this area.
THE PRINCIPLES OF FISCAL MANAGEMENT
The current Government has set out five principles of fiscal management – transparency, stability, responsibility, fairness and efficiency.
It implies that these principles are somehow new. And it makes yet more fundamental claims. In the recent Treasury book, “Reforming Britain’s Economic and Financial Policy”, which no doubt you have all read and which some of you may realise has now become my nightly bedside reading, the authors Ed Balls and Gus O’Donnell, assert that ‘a consensus has emerged in support of sound public finances as the principle medium-term objective of fiscal policy.’ Such a consensus, they claim, ‘grew out of the experience of the 1970’s and 1980’s which saw a relaxation of fiscal discipline.’
Not for the first time in their volume, they claim too much. The very phrase, ‘sound public finances’ could have been lifted from virtually any of the speeches of Margaret Thatcher or any of her Chancellors. To the extent that there is now consensus around the need for sound public finances, that consensus hardly arose because of Labour’s actions. Indeed, even now, there seems in Government circles to be little recognition of the trade-off between high tax levels and economic competitiveness.
But the principles are nevertheless welcome. And I am happy to endorse them.
THE RULES OF FISCAL POLICY
The principles, however, only take you so far. There is clearly room for huge differences of judgement in the way in which the principles are applied and it is in partial recognition of this that Gordon Brown has attempted to convey at least the impression of rigour by the introduction of his two fiscal rules. The first rule is that the Government will only borrow to finance net capital spending. This is the so-called ‘golden rule.’ The second – the ‘sustainable investment rule’ – is that, over the economic cycle, the ratio of net public sector debt to GDP should be set at a stable and prudent level, defined by the Chancellor as 40% of GDP.
The Chancellor has, of course, made great play of these rules. When announcing them to Parliament in June 1998, he claimed that they would go a long way to ending ‘once and for all’ boom and bust, a claim with which manufacturers and others might currently take issue. This would, in turn, he said, enhance stability and long-term investment in public services, thus enabling the country to achieve its potential.
The casual observer might therefore be left with the impression that these rules are rather powerful. In fact the gloss from the Treasury is such that Gordon Brown is often presented either as a modern day version of Gladstone or as the 21st Century reincarnation of Philip Snowden.
But the principles behind these rules are not new. They build on the approach taken by the Government’s Conservative predecessors. Ken Clarke’s Red Book in November 1996 stated: ‘Fiscal policy’s role is to maintain sound public finances. The Government’s fiscal objective is to bring the PSBR back towards balance over the medium term, and in particular to ensure that when the economy is on trend the public sector borrows no more than is required to finance its net capital spending’ (parag 2.09). Not only was the PSBR projected to fall to close to balance in 1999-2000, with a surplus thereafter, but net public sector debt was forecast to fall below 40 per cent of GDP in 2001-2.
The sustainable investment rule, which constrains public debt, has a particularly interesting pedigree. As early as 1976, Tim Congdon proposed, as part of a wider programme, a maximum ratio of public debt to GDP. He pointed out that a large deficit, which implied a rising ratio of debt to GDP, would result either in the crowding out of private sector investment or inflation. His analysis was incorporated into policy making in the 1980’s.
It is indeed gratifying that the present Chancellor has recognised the fact that an excessive budget deficit might risk excessive debt interest and, consequently, unnecessary taxation. But belated recognition is one thing. Fresh discovery is another. This approach did not start in 1997.
THE FLEXIBILITY OF THE RULES
Nor are these rules the all-encompassing ‘final word’ on fiscal policy that Government rhetoric would imply. The Institute of Fiscal Studies, for example, has said the rules are not ‘sacrosanct.’ It refers to them as ‘probably best regarded as sensible rules of thumb, but they are no more than that.’ I rather agree with this view.
At first sight, for example, there is some logic in terms of intergenerational fairness behind the golden rule. It seems equitable that each generation should pay fully for the spending that benefits them but should not have to pay for the spending that will benefit other generations. But even here, the rule is not perfect. Some spending that does not produce a durable physical asset nevertheless yields benefits to future generations – such as the defence spending during the last War, as Marc Robinson has pointed out in a paper for the IFS. Furthermore there may also be cases where future generations have to pick up the bill in a way that is acceptable under the golden rule – for example in respect of civil service pension liabilities.
But there are yet bigger problems when we look at the rules in more detail.
For example, the golden rule allows the ratio to be defined over the ‘economic cycle.’ This cycle is very difficult to define and as such gives the Chancellor considerable creative scope in assessing whether the rule has been met.
When I recently asked the Chancellor, in a written Parliamentary Question, for clarity on this matter, he referred me to the Red Book. This is what the relevant passage of the Red Book says:
‘Given the closeness of output to trend throughout 1997 to 1999,possible measurement errors and the prospect of further data revisions, it remains difficult to conclude for certain that the UK economy has completed a full, albeit short and shallow, economic cycle between the first half of 1997 and mid-1999. For the purposes of the Budget and the assessment of performance against the fiscal rules, the provisional judgement remains that a cycle may have been completed by mid-1999 when the current cycle is assumed to begin’ (Budget 2001, March 2001, para 2.36).
I am not sure that that makes it very much clearer what the Chancellor means but I hope you understand what I mean.
How is anyone supposed to hold the Chancellor to his test of the golden rule – supposedly cast iron, water-tight, a lynchpin of his entire approach – when it is so difficult to determine, at least until well after it has been completed, when the cycle to which it refers has started or ended?
And of course, the golden rule only constrains borrowing in relation to what is defined as current spending. This means that Governments can spend substantial amounts of money while keeping the golden rule. As the IFS have pointed out: `In the late 1960s and early 1970s, the golden rule was met. This was not because public sector net borrowing was particularly low, but because public investment at the time was high’ (Briefing Note, January 2001, p. 3).
OUR APPROACH TO THE RULES – SCRUTINY AND TRANSPARENCY
So what approach should an incoming Government take to these rules?
The Treasury has itself acknowledged that there is a balance to be struck between ‘a rigid mechanical approach and an approach based on unfettered discretion.’ I agree. And actually achieving this balance – ensuring that the rules are neither unachievable in a recession, nor so loose as to be meaningless – is, I agree, extremely difficult.
Two conclusions follow.
First, no Chancellor should seek to load greater authority onto the rules than they will bear. Gordon Brown’s attempt to dress up these rules as a return to some form of exceptionally rigorous Gladstonian fiscal orthodoxy is, I am afraid, wholly bogus.
Second, the rules need to be buttressed by other measures.
THE NEED FOR SCRUTINY
The best means of achieving this is through improved and more objective parliamentary scrutiny.
I have already proposed improved scrutiny of appointments to the Monetary Policy Committee. What scope is there for improving parliamentary scrutiny in the fiscal area?
One possibility would be to equip Parliament with an agency that could offer serious analysis of spending, borrowing and taxation in a manner comparable to that achieved by the Congressional Budget Office in the United States. It would mean that all the Treasury decisions could be authoritatively challenged by an objective agency accountable to Parliament.
Under the present arrangements, the National Audit Office and the Public Accounts Committee enable the legislature to scrutinise the previous actions of the Executive after the event. This work is exceptionally valuable, but Parliament should also be intellectually equipped and capable of properly challenging the Government as it develops its policies. And there is no more central area for this task than fiscal policy: spending, taxing and borrowing.
THE NEED FOR TRANSPARENCY
But for scrutiny to be effective a degree of transparency is necessary. Indeed, transparency is the first of the Government’s five principles. If this principle is to be achieved it must be possible for the facts on which debate is based to be capable of being established and, if possible, agreed. But one of the worrying developments since 1997 has been the increase in obfuscation from the Treasury. I am not talking here about the repeated reannouncements of spending proposals – those spinning Balls are easily caught.
I am talking about something much more insidious.
As the Financial Times has said: `Unfortunately, in many respects Mr Brown has reduced Budget transparency to a new low. Important tax changes have been omitted from the speech… Statistics have rarely been quoted on a consistent basis. The Budget documentation has been filled with political point-scoring rather than factual analysis. And there has been a continued tendency to classify the collection of revenue as anything other than taxation’ (2 March 2001).
Let us take a few of these points in turn.
We have become accustomed to the phenomenon of discovering after a Budget Statement that some very important measure has been buried in some obscure footnote. The extent of the £5 billion a year raid on people’s pension funds was not mentioned in the relevant Budget statement, with a reference instead to `a long needed reform’ (Gordon Brown, col. 306, HC Debs, 2 July 1997). When the Chancellor introduced the new 10p starting rate in his 1999 Budget he neglected to mention that he was abolishing the existing 20p rate. And nor was his stealth tax on entrepreneurs – IR35 – mentioned in his 1999 speech. Instead, he said: ‘I want to recruit, motivate and reward Britain’s risk-takers’ (Gordon Brown, col. 177, HC Debs, 9 March 1999).
Another example is the far too little known fact that the Government has deliberately excluded the impact of indirect taxes when illustrating the effects of Budget changes on specimen households.
The public accounts themselves are now more opaque and confusing than for many years. The Budget Red Book has been transformed from a coherent document that lucidly explained economic policy to a discursive document that confuses more than it informs. Meanwhile its length has risen from 160 pages when we left office to 225 pages last year. The Finance Bill likewise has risen from 219 pages to 292 pages.
It is little wonder that one of the most serious criticisms that can be levelled against the Chancellor is the increasing complexity of the tax system. The Institute of Chartered Accountants, for example, has said that the tax system has ‘spun out of democratic control’ because of complexity, the number of anomalies and the ‘culture of never-ending change.’
I know that the CPS is looking at this problem of the ever-increasing complexity of the tax system and I very much look forward to your conclusions.
Clearly this also has implications for two more of the principles which the Government has established for fiscal policy – efficiency and fairness.
Complexity in the tax system does not lend itself to meeting either meaning of the term `efficient’: the efficient allocation of resources in the economy or the narrow definition in terms of efficient tax collection. Indeed it is a startling fact that the number of Inland Revenue staff has risen from fewer than 50,000 in 1997 to 64,000 now.
One of the reasons behind this growing complexity is the tendency of the Chancellor to intervene in just about every area where intervention is possible. I accept that there is a proper place for the use of the tax system to encourage particular kinds of behaviour which are regarded as economically and socially desirable. But any such intervention should be used sparingly – both because any tax break for some effectively raises tax rates for others and also because this very process, unless it is firmly controlled, tends to constitute an impediment to transparency.
Yet as the Economist has said: ‘The signs are, in fact, that in microeconomic policy Mr Brown’s every instinct drives him towards complication and activism….. The Chancellor is meddling because he thinks he knows best…. The Chancellor appears to forget that fiscal complexity feeds on itself; that it creates anomalies that call forth new rules and complications’ (The Economist, 13 March 1999).
It is also clear that much of the opaqueness which has arisen in recent years is deliberate. The national accounts and public finances should in principle be presented on the basis of internationally agreed accounting conventions. That is why the Chancellor’s decision to score the Working Families Tax Credit as a credit that reduces income tax and the tax burden rather than for what it is, a social security benefit that increases public expenditure, is so reprehensible. His approach to this question is entirely inconsistent with the internally agreed accounting conventions. The Treasury Select Committee has also noted that, under accounting conventions employed by the ONS, the OECD and ESA95, `…WFTC counts as expenditure’ (report on Budget 2000, April 2000).
Even if the Chancellor’s preference to score the measure as a tax credit rather than a social security benefit were acceptable, he has chosen to treat the WFTC and the old Family Credit benefit, which it replaced, in different ways. In historical data presented by Gordon Brown, Family Credit is scored as a social security benefit and is not netted off against income tax. This of course is the opposite of what he has chosen to do with the Working Families Tax Credit. The result is a higher total tax burden before the introduction of the change and lower one afterwards despite the fact that there has been no change of any kind in the essential approach. That is not transparency, that is deliberate obfuscation.
Where statistics are not consistent Government documents should highlight this and explain the reason for it. This is particularly important where the Government is choosing to present numbers in a way that departs from the agreed international conventions. And where previously available information has been dropped, it should once again be made available and in an easily accessible form.
CODE FOR FISCAL RESPONSIBILITY
The Government has emphasised, in this context, the introduction of the Code for Fiscal Responsibility. Treasury advisers claim that the Code strengthens the openness, transparency and accountability of fiscal policy.
However, it is clear that the principles in the Code – the fiscal principles I listed earlier – are not being observed. The Code itself, although approved by Parliament and supported by the Finance Act 1998, does not have the force of statute.
We may need to look at ways to give effect to some of the rhetoric employed at the time of the Finance Act 1998 and ostensibly enshrined in the Code for Fiscal Responsibility.
I would welcome a public discussion on the lessons that we can learn from our experience since the legislation of 1998, together with the experience of scrutiny that is available for example under the New Zealand Fiscal Responsibility Act and elsewhere.
This would also help to meet the fifth principle of fiscal management: fairness. It is certainly a principle to which I would subscribe. But it is not a principle which is likely to be met under an opaque and complicated tax structure. And the Government’s general performance in this area leaves a great deal to be desired. The tax burden for the poorest fifth of households rose from 37% to 41% in the first three years of Labour Government – the latest figures which are available. That is hardly the record of a Government with an equitable tax policy.
SPENDING
The final point I wish to make about fiscal policy is, in many ways, one of the most important of all.
Both the fiscal rules of course relate to inputs into the public spending equation. Yet the most important issue is the outcome of that spending – its effectiveness.
The Chancellor in the foreword to the Treasury book states that there was a need for `better planned public spending’ in 1997, which focused on `the quality of public service provision’. Yet it is hardly credible to claim either that public spending over the last five years was in fact better planned, or that the quality of public service provision has improved as a result.
There does need to be a rigorous approach to assessing the effectiveness of decisions about public spending and investment. Of course the Government claims that such an approach is already taken. And there is, indeed, Treasury guidance, set out in the `Green Book’, covering the need for cost-benefit analysis of spending decisions.
Treasury advisers also highlight public service agreements as the means by which attention is focused on outcomes rather than inputs. Yet these have not achieved that goal, not least because many of the targets are not being met.
An IMF working paper last year looked at these issues. It stated that UK Government authorities implicitly recognised that the golden rule was about how investment is financed, not about the optimum level of that investment. The paper went on to say: `it is particularly important that the details of how a “value for money” criterion will be implemented are clearly set out. But that is not yet the case in the United Kingdom’. It said, in relation to the Government’s requirement that each department publish a Departmental Investment Strategy, that the first strategies (in March 1999) contained little relevant information other than to refer to existing (non-mandatory) guidelines on investment appraisal.
So it is clear that not enough attention is being given to this vital area, one which is often overlooked in discussion of the fiscal rules.
CONCLUSION
I have today focused on the framework for fiscal policy, and have set out some suggestions for how it might be strengthened.
The Chancellor’s fiscal rules have an important role to play, but their limitations need to be acknowledged. They need to be buttressed through the introduction of a degree of objective scrutiny and transparency into fiscal policy. There also needs to be a greater focus on the outcome of the spending – rather than just the amount which is spent.
I will be focusing in future speeches on non-fiscal aspects of the supply-side economy. But it is important at this stage to recognise that the combination of ever higher taxes along with ever worsening public services, a less transparent tax system and employment regulations that make the labour market less flexible will, in the medium-term, depress the economy’s growth rate.
Beneficial supply-side reforms take a long time before their full effects on an economy are evident. The impact of damaging policies on the supply-side is also only clear after a lag, and the lags involved can be protracted. It is because these lags are so long that we need a properly informed debate about these issues now. The public finances should be accurately and intelligibly presented. And the institutional arrangements for presenting and scrutinising the government’s fiscal polices need to be strengthened.
Measures of this kind will not guarantee halcyon economic performance forevermore. But they would represent a clear improvement on the arrangements that are presently in place. I hope they can form the basis of informed debate during the rest of this Parliament.
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Nadhim Zahawi – 2022 Comments on Cost of Living Support
The comments made by Nadhim Zahawi, the Chancellor of the Exchequer, on 25 August 2022.
I know people are really concerned by rising prices so I’m glad that over a million more low earners will shortly receive their first Cost of Living Payment. We are also preparing options for further support so the new Prime Minister can hit the ground running.
Alongside £400 off most people’s energy bills, tax cuts and the Household Support Fund, these direct payments are a very important part of our £37 billion package of help for households, which is targeted at those who need it most.
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Iain Duncan Smith – 2003 Speech in Response to the Budget
The speech made by Iain Duncan Smith, the then Leader of the Opposition, in the House of Commons on 9 April 2003.
On behalf of the whole House, I congratulate the Chancellor on his happy announcement last weekend. I can assure him . children are a great blessing.
Mr Deputy Speaker, over the past six years we have come to learn that the Chancellor’s Budget speeches are characterised as much by what they conceal as what they disclose.
He prefers to let the damaging detail, the fine print, leak out over the days and weeks that follow.
Today, nonetheless, despite all the Chancellor’s bombast and bravado, we learnt a lot.
We learnt that the Chancellor has got his forecasts wrong. Again.
We learnt that borrowing is up. Again.
We learnt that taxes are up. And will stay up – from this week, a typical family is another £568 a year worse off.
And we learnt that the Chancellor has no intention of being candid with this House or with the British people.
Just look at today’s Red Book.
1. On page 235 we see the savings ratio this year is forecast to be even lower than it was last year.
2. On page 241 – we see that manufacturing output fell last year by 4 per cent, and that the Chancellor’s forecast for this year has been slashed.
3. And on page 238 – we see that business investment, forecast last April to grow this year by up to 6 per cent, is now forecast to fall.
We didn’t hear any of those details from the Chancellor today.
The Chancellor who promised us prudence has now given us higher borrowing and higher taxes at the same time.
His Budget message to the British people is. Higher taxes – that’s pain today.
Higher borrowing – that’s more pain tomorrow.
This is the Chancellor who has put up taxes…on pay and on jobs..on homes and on homeowners..on mortgages and on marriages..on petrol and on pensions.
The Government is taking an extra five and a half thousand pounds per household per year.. an extra £44 a week in tax for every man, woman and child.
The Chancellor’s excuse was that this money would make our public services world class.
Instead. .we have a million people on hospital waiting lists. .a crime is committed every five seconds..and thousands of children are leaving school without a single GCSE.
More tax, more spend, more waste – that is the sum of the Chancellor’s approach.
This was the Government that promised: “We have no plans to increase tax at all.”
And: “Our proposals do not involve raising taxes.”
And even: “We want people to pay lower taxes.”
And now, 53 tax rises later.This week, when people receive their pay packets, they will find that their take home pay has fallen for the first time in twenty years.
Now they know what this Chancellor really stands for.
Promises, promises, promises.
Every year he makes them and every year he breaks them.
And just as he has broken his promises to individuals, so has he broken his promises to business.
In 1998, the Chancellor promised “major changes” to help business.
In ’99, he promised tax cuts for business.
In 2000, he promised incentives for business.
In 2001, he promised more good news for business.
Today we see what his promises are worth.
An £8 billion tax on jobs.
That’s the cost of his National Insurance hike.
It’s hitting business. And it’s hitting them hard!
So hard, say the British Chambers of Commerce, that one in five firms may cut jobs as a result.
In fact, this Chancellor has been so hard on business that, since 1997, he has taken an extra £47 billion from them in tax.
No wonder he didn’t tell the House today about the real cost of his policies.
He didn’t say insolvencies are at their worst level for a decade.
Or that analysts say that another 70,000 firms will go bust over the next three years.
And he didn’t say that manufacturing has lost 300 jobs every single day since Labour came to power.
And he didn’t say that manufacturing output and investment are both now lower than when he delivered his first Budget.
And just as he has broken his promises to business, so he has broken his promises to hard-working families.
Since 1997 council tax has gone up by 60 per cent, adding more than £400 to a typical bill.
Just look at the Red Book – council tax up by £8 billion since Labour came to power.
Stamp duty increases have added over £5000 to the cost of the average detached home in the South East.
The abolition of mortgage tax relief has cost homeowners over £200 a year.
The abolition of the Married Couples’ Allowance has cost families £300 a year.
Higher petrol taxes have cost the average motorist another £300 a year.
In short, the Government’s tax take has now risen by 50 per cent since he became Chancellor.
Mr Deputy Speaker, of all those who have been hit by the Chancellor, there is one group who will be hurt more than most.
The savers of today are the pensioners of tomorrow.
And he has blighted their old age, their retirement . . . what should have been their golden years.
In 1997, he promised, “to encourage personal savings”.
In 2001, he promised, “to reward savers, pensioners and hard working families”.
Promises, promises, promises.
But under him, saving has halved.
When Labour took office in 1997 the savings ratio was 10 per cent.
Today it is 4.75 per cent. It’s there in the Red Book.
So he’s destroyed savings.
And his so-called “reform” to the pensions system has hit future pensioners with a £5 billion a year tax. .it has created a pensions crisis..and, perhaps most damaging of all.someone retiring today will do so on half the income they would have received in 1997 – – Half.
And he hasn’t just let down future pensioners.
Because this was the man who promised to end the means test for pensioners.
But under him, the proportion of pensioner households subject to a means test is up by 50 per cent.
I want to turn now, Mr Deputy Speaker, to the financial impact of war in Iraq.
We support the Government in their waging of this war and we naturally support its full and proper funding.
But the Chancellor should be warned. He cannot get away with using this war to get him off the hook for his long-term mismanagement of the economy.
And he can’t get away with blaming Europe for his problems.
He simply cannot blame his flawed and missed forecasts solely on world events.
Last April, the Chancellor delivered his forecasts for the coming year to the House.
And he got them wrong.
He got his forecasts for growth wrong.
His excuse, in other words.
He got his forecasts for tax revenues – wrong.
And he got his forecasts for borrowing – wrong.
In November, the Chancellor admitted that his central growth forecast for 2002 – two and a quarter per cent – was wrong.
He conceded that tax revenues had failed to meet his projections.
He announced that borrowing would have to rise – by £20 billion in just two years.
And then he blamed everything on the fact that world trade and world GDP growth had not been as fast as he had forecast..was not that the Chancellor had failed Britain….but that the World had failed the Chancellor.
Now, that’s a serious charge, Mr Deputy Speaker.
So I went back to last year’s Red Book.
And when you look at it, you see that.
At the time he delivered his Pre-Budget Report in November.
The only forecasts that were right were his forecasts for world trade and his forecasts for world growth.
So, he blamed the world for getting it wrong, but actually that was the only forecast he got right.
Today, the Chancellor had to admit he has got his growth forecast wrong yet again.
So his growth forecasts were wrong and his assumptions for tax revenues were wrong as well.
The result is that his projections for borrowing are wrong.
Now, the Chancellor sprinted through his borrowing figures, so let me recap.
Last April, the Chancellor predicted that he would have to borrow £13 billion this financial year.
Today, he admitted he would actually have to borrow £27 billion.
And that only takes us to the end of this financial year.
Look at the longer term picture.
Just two Budgets ago, the Chancellor told the House that he would need to borrow £35 billion between 2002 and 2006.
Today, he admitted that the true figure for total borrowing over that period is actually £98 billion.
So in just two years, his medium term borrowing requirements have risen by £63 billion.
That’s an extra £2600 per household.
But borrowing is not something the Chancellor can do indefinitely.
More and more borrowing will mean higher and higher taxes.
Throughout, independent forecasters have long been warning him that he was far too optimistic.
They questioned his revised predictions.
Some called them, “overly optimistic” and “rose-tinted”.
And we know what the independent experts think now.
78 per cent of them think that, by 2006, the Chancellor will have to raise taxes by between five and eight billion pounds.
And these are the experts on the Treasury’s own panel.
But you won’t hear this from the Chancellor.
Mr Deputy Speaker, the Chancellor’s broken promises and missed forecasts might be more palatable if we were seeing real reform of our public services.
But the facts speak for themselves.
Take health: A million people on NHS waiting lists. Hospital admissions down, not up. And, last year, three hundred thousand people forced to pay for their own operations – a figure that has trebled since 1997.
Or education. 50,000 children play truant every day one in four leaves primary school unable to read, write and count properly and more than 30,000 children leave school each year without a single GCSE.
Mr Deputy Speaker, this Government has tested to destruction the theory that more and more money alone can transform our public services.
They have talked about reform, but they have delivered none.
Today, he could have delivered.
Six years of spin and spending can’t hide the fact that our public services are just not good enough.
They don’t simply need more money, they need a new approach.
An approach based on giving power back to people, so they feel in control of their lives – whether they are nurses and teachers or patients and parents.
Mr Deputy Speaker, the Chancellor has just delivered his seventh Budget.
Six years.
Seven speeches.
Promises, promises, promises.
He promised . . .
Prudent Budgets . . Fair Budgets. . . Budgets for enterprise. . . Budgets for the public services.
And he hasn’t delivered any of it.
He has got it wrong because he puts systems and initiatives, targets and schemes, before real people and real results.
He has got it wrong because he thinks he knows better than the people of this country how they should be living their lives.
He has got it wrong because he is driven not by the facts – which are staring him in the face – but by an ideology that has gripped his mind and will not let it go.
His sole mission is to prove that the old ways still work.
Never mind the evidence, never mind the consequences.
So it’s just more failing policies and more downgraded forecasts from a discredited Chancellor.
Last week, before it was too late, he could have scrapped his tax on jobs and pay.
He could have stopped punishing people who work hard and save hard. Security and independence, for the young and the old, for hard-working families and individuals, for those who create jobs and those who need them, for those who pay for our public services and for those who rely on them.
He could have delivered a fair deal for all of them.
But he didn’t.
He never will.
And it’s the British people, Mr Deputy Speaker, who will pay the price.
More taxes, more spending and public services that simply aren’t good enough.
The message of this Budget is clear.
For the British people – it’s pain today. And as borrowing spirals while the Chancellor blocks real reform, today’s Budget means more pain tomorrow.
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Iain Duncan Smith – 2003 Speech at the British-Swiss Chamber of Commerce in Central London
The speech made by Iain Duncan Smith, the then Leader of the Opposition, on 19 May 2003.
It’s a great privilege to be here to speak to you today. The British-Swiss Chamber of Commerce has a vital role to play in developing business relations between Britain and Switzerland.
It’s a role you play with distinction.
I would like to address three issues which are of common interest to all those concerned with the future- its business environment and, its place in Europe.
In turn, I want to deal with our competitiveness, the euro and the proposed European Constitution.
I have three propositions for you today.First, that Britain’s competitive position is being undermined…
both by the micro-economic management of a Government that does not understand how business works and by the impact of its failure to reform our public services on our tax position, our public finances and our quality of life.
Second, that addressing these root causes of declining competitiveness is what matters most to Britain and its business economy – not focusing on joining the euro. Labour’s political obsession with the latter is to the detriment of us all.
Third, that Europe will not be improved by deeper integration and the strengthening of its institutions – but rather by bringing democratic power and accountability closer to all the peoples of Europe by reinforcing the autonomous power of nation states.
We will lead this fight.
Competitiveness
Britain does not enjoy the quality of life it should.
· There are a million people on Britain’s hospital waiting lists.
· One in four children leave our primary schools unable to read, write and count properly.
· Thirty thousand children leave our secondary schools without a single GCSE.
· 39 out of every 40 crimes go unpunished by a conviction.
· And British people spend longer commuting to work than any other people in Europe.The Labour Government’s only answer has been to spend more and more taxpayers’ money.
By the end of their current plans, real terms spending on health will have doubled — and on education will have risen by 50 per cent.
That’s why the government tax take has already risen by the equivalent of an extra five and a half thousand pounds a year for every household in Britain.
And that’s why public borrowing is now spiralling upwards too.
This is nothing less than a massive tax and spend gamble.
And our competitiveness is fast being eroded.
Britain is once more becoming a place where people do not want to do business.
Business investment is falling and savings have collapsed.
Burdens on business are up and our competitiveness and productivity growth are down.
The CBI believes Labour’s extra tax and regulations have added as much as £15 billion a year to the cost of doing business in Britain.
And since 1997
· we’ve lost over half a million jobs in manufacturing,
· we’ve seen the number of days lost to strikes increased sixfold
· and we’ve fallen from 9th to 16th in the World Competitiveness rankings.But more than this, we understand that competitiveness is not just about economic efficiency.
To compete means being a country where people want to live and where businesses actively choose to locate their operations.
A place that can attract and retain the best talent and the most investment.
A place with something extra to offer.
To compete means being a nation with a well educated, highly qualified workforce that doesn’t waste weeks every year, off sick, or stuck in traffic jams.
As a global competitor, we have lost a lot of ground.
With taxes up, we’re a more expensive place to do business.
With regulation up, we’re no longer an easy place to do business.
With our public services in decay, we’re no longer a magnet for talent or investment.
So how would a Conservative administration be different?
First, we are, by nature, a party of lower tax.
We believe that governments should measure success not by how much money they spend, but how well – and how carefully – they spend it.
Second, a Conservative Government will not second-guess everything business does.
We will not be over-interfering in the way businesses are run.
Third, on public services we are committed to a strategy of real reform — widening choice and rooting out bureaucratic waste.
This is what it will take if we are to begin to deliver a fair deal for everyone.
And if we fail, Britain will be a less competitive place as a result.
Euro
My second proposition is that rather than addressing these problems, the Government is obsessed with the euro.
Look at the mess they are in.
Last Wednesday, they told the BBC they had reached an agreement.
By Thursday morning they were having to deny that.
And shortly afterwards, they announced that the Chancellor’s conclusions on the euro would be delayed until June 9.
In the meantime, special Cabinet sessions have been called to thrash out the issue.
The Chancellor, the Prime Minister and their factions are still clearly miles apart on whether they will rule out a euro vote before the next election.
And Cabinet Ministers have been contradicting each other every other day.
Last Sunday, John Reid said it was a question of when Britain would join the euro.
Then on Wednesday, Jack Straw said it was first of all a question of if Britain should join.
On Thursday, John Prescott said they hadn’t even decided whether the question itself was if or when.
On Friday, the Prime Minister and the Chancellor were so concerned about the depth of the splits that they issued a joint statement to deny there were any splits at all.
And yet we now hear that the Prime Minister does not want to hold a full Cabinet discussion on the euro until he has marched members of the Cabinet in one by one to beat up the Chancellor in private.
I have a simple message for the Prime Minister and the Chancellor – let us all see the available evidence now.
That way, we can weigh all the facts up for ourselves and come to our own conclusions.
The Conservatives’ position is clear.
We would not take Britain into the euro because we believe that giving up our ability to set our own interest rates would be…
· bad for British jobs…
· bad for the British economy….
· and bad for the British people.We believe Gordon Brown’s five tests are a sham.
Of course the Chancellor is right to say that it would be damaging to join the euro…
· without the necessary convergence or flexibility…
· or if joining would be bad for investment, financial services, or jobs.But there is no case for saying that any of these tests have been met.
France has 2.5 million people unemployed; and Germany nearly double that.
It is impossible to see how the Government could argue that joining the euro would be good for jobs.
In fact, the opposite is true.
But, of course, these economic tests are no more than an elaborate smokescreen.
Because the only test that matters to the Government is the political one.
They may pretend that they want to join the euro for economic reasons.
They may argue that remaining outside the euro will damage our economic prospects – hitting our competitiveness, our trade performance and our ability to attract investment.
But the fact is that despite being outside the euro, Britain remains a more attractive destination for inward investment than any eurozone country.
We remain the world’s third favourite location for inward investors, after China and the United States.
Not being in the euro has done our investment performance no harm at all.
And the example of Switzerland, for that matter, shows that it is possible to live prosperously alongside the euro, at the heart of Europe, without adopting the single currency.
But we will not retain our position for long if our domestic competitiveness continues to be undermined and we cease to be an attractive place to do business.
Our trade performance tells the same story.
In the euro’s first three years, British goods exports to the eurozone grew by 26.4 per cent – faster than France, Germany or Italy.
But again, in the long term, our trade performance will depend on our ability to provide goods and services to a competitive standard at a competitive cost.
So long as our productivity growth stagnates as it has for the past five years, we are in danger of slipping behind our competitors.
And by that I do not just mean our competitors in the EU, but all those around the world.
As we speak, the current uncertainty is doing damage to our competitive position.The Government is split and concentrating on healing political rows rather than on healing the public services.
And, meanwhile, business is crying out for more certainty.
My message to the Prime Minister is simple.
Ever since becoming Prime Minister he has made it clear that he is in favour of the euro in principle.
If, despite all the economic evidence, and despite all the splits in his Cabinet, he remains determined to take Britain into the euro, then…
…he should admit that his is an entirely political decision…
…and he should get on with calling a referendum so the British people can have their say.If not, he should forget about it and get on with what matters to the British people – delivering sustained prosperity and world-class public services.
Constitution
I am going to turn now to my third and final proposition – that the Government’s policy on the European Constitution, like its policy on the euro, threatens to give people a raw deal.
The Convention on the Future of Europe is drawing up a draft constitution that may determine the shape of Europe for the next half-century.
But right now, Europe faces tougher challenges than it has for many years.
For a long time, we Conservatives have argued that the European Union is faced with a crisis of democracy and accountability.
Turnout in European elections has fallen below fifty per cent across Europe.
The peoples of Europe feel little ownership of European institutions.
But at the same time the Europe Union is growing.
Ten new states will join next year, increasing the EU’s population to four hundred and fifty million.
We have always seen enlargement as one of the European Union’s most important tasks.
But I fear that the direction being taken by the draft European Constitution will do little to serve the interests of the people of Europe, present or future.
The peoples of Europe, and most particularly those in enlargement states, want jobs and prosperity — but the EU’s economic performance has been poor, and unemployment is far too high.
Across the EU, people also want to feel connected to the laws and institutions that government them — but at present, our democracies face a great challenge — people feel alienated from the political process.
Economic reform and political connection – these are the two points a modern, forward-looking EU should focus on.
But though it is clear — and almost universally agreed — that the EU is in desperate need of reform — the Convention is looking backwards towards a vision of Europe that is wholly outdated.
Now is not the time for more centralization and deeper integration in the EU.
It’s time, as can be seen so clearly from the health of democracy in Switzerland, to reinforce democracy in nation states.
The Conservative Party has a different vision of the future of the European Union.
We want to see the decentralising of powers back towards national parliaments.
Not least because, in the case of many of the new, enlargement states, these Parliaments are young, hopeful institutions we should seek to support, not to undermine.
That way we can achieve a Europe that is more democratic, more accountable, and better suited to enlargement.
And it is because we believe so passionately in an alternative and, we think, better vision of a modern Europe…
…because we believe in the dream of a prosperous, harmonious, enlarged Europe that works for all its people…
…we believe that the people of Britain should have the opportunity to vote on any proposed European Constitution.Since the current Labour Government came to power in 1997, there have been 34 referendums in Britain.
Referendums have been held on everything from devolution to elected mayors – and have been promised on regional assemblies.
In short, referendums have become the norm wherever changes have been proposed to the way people are represented and governed.
But when it comes to the European Constitution – a constitution that will decide how every person in this country is governed, regardless of where they live – the Government doesn’t think the British people need a say.
The Government’s defence is that the European Constitution will merely be a ‘tidying-up exercise’.
Let’s challenge that assertion.
The Prime Minister meets Giscard d’Estaing tonight.
If this is merely a tidying up exercise, then a lot of what is currently being proposed must be dropped.
Not least the plans for…
· a single European foreign minister
· a Constitution with legally enforceable fundamental rights
· the establishment of legal status for the EU – the prerequisite of a state
· the bringing of foreign, defence and home affairs, including asylum and immigration policy, under European jurisdiction
· the extension of EU competence over criminal law including the establishment of an EU public prosecutor.
· the adoption of qualified majority voting, rather than unanimity, as the default mode of European decision making
· and plans to establish a fixed term five year presidency of the EU, even if that means Tony Blair having to reconsider what he will do with his retirement.Unless these, and other, items are dropped, then this cannot be called mere tidying up.
As things stand, there can be no doubt that the draft constitution proposes deep and dangerous changes to how the British people, and all other peoples of Europe, are governed.
What could strengthen the Prime Minister’s negotiating position more, and what could reassure those who fear what will emerge from this Convention more, than a commitment to giving the British people the right to make up their own minds on a proposed European Constitution?
In just six years they have held 34 referendums.
And there are many more to come.
But on the only two issues of absolutely crucial importance to every single person in Britain – membership of the euro and signing up to a European Constitution – the Government is playing political games.
On the euro, it has promised a referendum – but is clearly planning to call one only if and when it believes it can win.
On the Constitution it speaks volumes that the Government has so arrogantly dismissed calls for the British people to have any say at all.
It refuses to grant them a referendum.
Contrast this with Switzerland, where a series of referendums were held only yesterday.
Conclusion
Historically, Britain is a great trading nation.
Globally, we were the forefathers of free trade.
We retain close and important ties with Switzerland and with so many countries across the world, within the EU and outside it.
At home, a Conservative Government will recognize that it is the flexibility and innovation at the heart of our economy that determines our ability to compete internationally, far more than whether or not we share the same currency as others.
We believe that if we hold no-one in our society back, we will be better placed to achieve this competitiveness and to ensure that no-one in our country is left behind.
Internationally, we recognize that people don’t want a European super-state that leaves them feeling alienated from the faceless institutions that make their laws.
The people of Europe deserve to live in a harmonious union of free moving, free trading nations, fostering prosperity and stability.
The nations of Europe should settle for nothing less.