An interesting agenda
The political debate about the economy is currently focused on the issue of spending cuts. Quite rightly so.
But in other policy areas – just below the surface, something quite interesting is happening.
The scary thing is – it’s quite an attractive one.
George Osbourne, has proposed that the tax system should be changed to make it less favourable to companies taking on more debt. If the Conservatives come to power and actually put this idea into practice, it would have some interesting effects. Hopefully, it should make the private equity model less profitable and discourage the short-term buying and asset-stripping of well-functioning businesses.
But here’s a striking insight into his instincts: “one of the most damaging impacts of the credit boom” he said “was that real venture capital in exciting new businesses was squeezed out by highly leveraged private equity”.
In other words, Osborne – unlike either Alistair Darling or Gordon Brown – has signalled strong distaste for the private-equity boom of 2005-7, when many of our biggest companies were taken private in deals that saw them loaded up with debt (if you go back to the archives of this blog for the first half of 2007, you’ll find a good deal about all this).
He has a list of ideas for boosting private savings, like abolishing the basic rate tax on savings income, which he’s raised before. But perhaps most eye-popping, for those of us who’ve been around for a while, is the shadow chancellor’s admission that Will Hutton was right all along.
You may remember that Will Hutton – now chief executive of the Work Foundation – wrote the 1995 best-seller The State We’re In which, for a time, was New Labour’s bible on all the things that were wrong with the UK economy under the Conservatives.
The book’s basic line, which its author has come back to lately, is that our economic system encourages short term rent-seeking and undervalues long-term investment in productive assets. It’s fair to say that it received pretty short shrift from Conservatives at the time.
Now, after years of Conservatives promoting a largely “hands-off” attitude to investment, George Osborne seems to have decided that Hutton has a point.
He says that he’s not talking about “picking winners and national champions”. Heaven forfend – no-one would admit to that these days. But he wants “a long-term and more strategic attitude to investment in infrastructure, skills and new technologies”.
Steph and Pesto are both carrying reports of Osbourne’s recent speech which, if they are to be believed, would place the Tory post election economic policy a couple of notches to the left of Labour’s. A end to bankers bonuses, tax breaks for equity not debt, priority given to long term investment, that sort of thing. Nothing desperately radical you understand – I think Steph is over-egging the pudding by drawing in Will Hutton as a comparator – but certainly a break from ‘the pro-financial markets at all costs’ approach which characterised the Brown/Darling policy line before the crash, and very distinct from their emergency programme of recapitalising the banks since.
We learned a lot more about Conservative economic policy today in a detailed (and annoyingly thoughtful) speech by George Osborne. There’s a lot in it which I may return to in future posts. But what struck me is how the speech seems to presage the emergence of a new consensus between the main parties only a few months after the last one collapsed in a heap alongside Lehman Brothers.
Osborne says it is time for a new “British Economic Model” based on three priorities: fiscal soundness; shifting the economy away from excessive debt towards savings and investment; and a new emphasis on long term returns and productivity rather than the short-termism that characterises the UK economy.
A few handfuls of salt to take this Damascene conversion with. One, it wasn’t so long ago that Osborne was brown-nosing the BVCA, and criticising unions for attacking private equity. Secondly, why keep the proposal to scrap duty on shares, since this will make trading more attractive (in fact the opposite of Keynes’ idea in the end of my previous post). Finally, the speech itself is detail free, and seems to do little more than restate existing or emerging best practice (apparently pay in the financial sector shouldn’t encourage short-termism for instance).
On the issue of spending and the need to pay down debt quickly I disagree fundamentally with the Tory line. And that’s a deal breaker.
But this new stuff is interesting. When I started arguing for a more active industrial policy a few months back, I assumed I would be called crazy and be asked why I wanted to return to the 1970s? (Newmania does this a fair bit in the comments).
But here we are with the centre-right party calling for essentially the same thing. The political space that makes this possible is opening up.
This should be our economic message – we prevented a slide in the economy and now we are going to help rebuild it.