Liberalism has always been and should be about enterprise, competition, free trade and open markets.
I am part of that tradition whose economic liberalism, of course, we have to balance with a concern for the environmental impact of economic activity, the need for properly funded public services and a fair distribution of rewards.
The Labour Government can reasonably claim to have produced a measure of economic stability, thanks mainly to the decision – which we had advocated and then supported – to make the Bank of England independent.
But it has produced excessive regulation; a mixture of Maoist revolutionary upheaval and poor performance in the public sector which in some key areas – the Home Office, Revenue and Customs, Work and Pensions is appallingly inefficient; a tax burden which is complex and inefficient; and a creaking infrastructure.
Underlying the Government’s growing problems is a fundamentally flawed approach to management which rests on controlling everything from the centre and on obsession with multiple targets that are insensitive to local conditions.
Micro–management by politicians from Whitehall is inefficient and ineffective. No successful business chief executive would try to control every aspect of their operating companies’ activities. But Brown and Blair are both avid centralisers.
Let me now sketch out our approach to several issues. First: taxation.
The assumption which we make is that the overall level of tax should not rise. The Government has raised large sums of money for investment in public services – which we supported – and needs to deliver value for money, but not ask for more.
We propose however to shift the tax system to make it simpler as well as fairer and greener.
We would cut the national income tax base rate from 22 to 20p while also abandoning our earlier plan for a 50p top rate. Raising personal allowances would also allow us to take 2 million workers out of income tax altogether. We would also raise allowances for middle income earners who have been dragged into the top rate. We would pay for our package of tax cuts by raising environmental taxes and by higher taxes on the very wealthy. But we recognise the importance of work incentives and profit making.
Our approach to business tax is to make it simpler, to strip out a lot of the complex reliefs and hand the money back to business in lower corporation tax rates.
Second, there is now general acceptance that this government has allowed red tape to get out of control. The target set by the Treasury in this year’s budget to cut the burden of Revenue and Customs forms by 10% by 2011 is a clear admission by the Chancellor that reform is needed.
But 2% a year is hardly ambitious. Why wait until 2011?
Let me make some suggestions about how to cut regulation.
First, abolish the DTI. It does not add value but complicates the picture. We have seen recently that schemes like the Small Business Support help few companies and increase cost in bureaucratic overheads.
Second, Independent Impact Assessment of new regulation to force Ministers and Bureaucrats to look at the implications of their decisions. Existing Regulatory Impact Assessments (RIAs) are performed inconsistently and usually by the department that is implementing the regulation. These should be performed by a new independent body, to give an objective view to Parliament.
Third, new business rules – such as changes to the Small Firms Loans Guarantee Scheme, or to work permit rules – should be reviewed after two years to assess their effectiveness and to examine any unintended consequences. The RIA board would be able to recommend repeal if necessary.
Fourth, sunset clauses should be standard, with different lifetimes set depending on the nature of the regulation.
Fifth, EU and national processes need to be streamlined EU directives are a major source of unwanted complexity in business regulation, especially when translated and gold-plated by UK civil servants.
Europe may be the source of some irritation for business, but the positive effects of the European Union and the single market are substantial.
Enlargement has been a major economic success. Of course, Europe needs to liberalise, and there are sectors like energy and agriculture where the EU remains shockingly protectionist.
I lead a pro-European party. But we are hard-headed about our commitment and voted against the recent budget deal because the Prime Minister failed to deliver on his negotiating objectives: to secure reform.
Market based reform is essential.
In this, business – as a truly European constituency, has a crucial role to play. I fully support the initiative of Martin Sorrell and Michael Rake in setting up Business for New Europe.
The EU will have a key role to play in another area crucial to the future direction of the British economy: environmental policy as through emissions targets under the European Emissions Trading Scheme. The requirement to cut our carbon emissions significantly will shape the growth of the economy in future.
But rather than waiting for targets to bite, we need to imagine what a low carbon economy looks like and start taking decisions to move the economy in that direction.
A low-carbon economy is both an opportunity and a challenge. Properly handled, it can offer both greater security of supply and competitive costs.
The move towards green technologies heralds the possibility of several new emerging markets. Britain should be ahead of the curve.
It is encouraging to see thirteen major companies arguing the case for lower emissions targets in order to boost innovation as they did last week.
We see no justification however for the Prime Minister’s strong enthusiasm for a new generation of nuclear power stations. The Cabinet Office in 2003 produced a review endorsed by the Prime Minister at the time outlining a non-nuclear strategy. Liberal Democrats share that vision. Our policies would deliver energy security through investing in renewables, energy efficiency, micro-generation and carbon capture technologies, without the need for new nuclear power.
Significant questions remain unanswered about the commercial viability of a new generation of power stations and about the management of the financial and environmental risks.
No private company will invest in nuclear power without massive public subsidies or a rigging of the market.
No sensible government should guarantee to meet unknown decommissioning costs when the present generation of nuclear power stations may cost up to £90 billion to clean-up. But the alternative is equally damaging: business would pay a heavy price in a rigged market that passed these costs on to energy consumers.
Investment in nuclear will discourage investment in other technologies that could supply capacity.
There is little doubt in my mind that a decision to ‘go nuclear’ will crowd out investment in renewable energy sources to the detriment of the country and the renewables industry.
In his rush for a legacy the Prime Minister is in danger of hanging several mill-stones around the neck of the British economy. Nuclear power is one, timidity on pensions reform is another.
Of the five tests set by John Hutton for “a pensions settlement for the 21st century”, only one is likely to be fully met.
Their proposals do not promote fairness in the system – unless there is a dramatic increase in the number of people entitled to receive a full state pension the indexing of pensions from 2012 will only benefit the wealthiest pensioners.
Their proposals do not radically simplify the system – means testing will be extended over the next 6 years consolidating greater complexity in the system. The continuation of the contributory principle for the state pension will only maintain the high level of complexity in the system, making pension entitlement in each year very unclear.
Their proposals do not do enough to promote personal responsibility- means testing will not be reduced- and the system will continue to act as a disincentive to save for many. The plans put forward by Labour are not sustainable and fail to deliver a settlement for the 21st century.
A decent Citizen’s Pension means that we could move away from mass means-testing of pensioners, and make sure that every pensioner gets their full entitlement. Scrapping mass means-testing will create much more simplicity and transparency for people planning for their retirement.
Basing the pension on residency and not contributions would be simpler and would extend coverage, especially to women.
Equally, with a stable Citizen’s Pension as a base, employers should find it easier to determine an affordable and sustainable approach to their own occupational pensions schemes.
We want to see as many people as possible with an additional, personal pension, which is not controlled by the state.
We support the use of the power of inertia to boost pensions, by requiring all employees ultimately to be opted into a pension, which they would be able to opt out of.
And public sector pension schemes must be put on a fair and sound footing not given an unfair advantage over private sector.
New Labour has had mixed success managing the economy but for the sake of competitiveness and efficiency, we now need a breath a fresh of air.
A return to liberal principle of fair competition in the economy, without unnecessary government interference, but also without government bail-outs,
In short, a return to liberal common sense.