Former Exchequer Secretary to the Treasury Kitty Ussher writes about public services and the economy ahead of the Progress Annual Conference.
Imagine we weren’t policy-makers in Britain but in a small emerging economy that nobody took any notice of but nevertheless had big ambitions to succeed. What would our attitude to the private sector be then?
I reckon there would be a real commitment to a partnership approach with the most exciting sectors, a close understanding of their business needs and possible growth trajectories, and a sense of teamwork, with each doing their part to turn that vision into reality.
Small business and entrepreneurship would be encouraged, tax rates set at simple levels in a pro-enterprise way.
There would be a huge commitment to investing in the future – be it education or infrastructure – and a desire to leapfrog other nations as well as learning from their mistakes.
It would be taken as read that we were striving to achieve a far better standard of living for our children and grandchildren, that we had a responsibility to grab the opportunity on offer to achieve that.
In Britain the situation is far more complex. We already have entrenched traditions and institutions, some of which work better than others. And our economy is already large – the fourth largest in the world – and in places exists despite, rather than because of, the government.
But there are still some lessons to be learnt from imagining we were the emergent challenger, not the incumbent player.
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First, we need a greater sense of vision. What is Britain for? Where are we going and how can public and private work together to achieve that? Why can’t we aspire to be the leader, leapfrogging others in technology and infrastructure, rather than allowing other niche players to do so?
Giving a clear sense of direction of where economic activity is expected to grow would be a good start.
We could start with the most modern infrastructure, or the easiest place to re-train mid career, the strongest survival rate for new businesses, or an asset-based welfare system that gives greater financial control to people when times are hard.
Second, we need to be prepared to intervene. This does not mean handouts. Indeed many of the industry schemes that do amount to taxpayer support to already-large companies could be phased out.
But it does mean using the power of the state to do what companies find hard, such as using procurement to push forward the boundaries of technology, having transparency and predictability in tax policy, championing British interests abroad, investing in a panoply of market failures especially education, and capturing the imagination of the rest of the world as to what can be achieved here.
Of course it means ending exploitation and protecting public goods such as the environment – but it also means being innovative to create markets that achieve our desired aims, be they to reward investment in green electricity or create retail products that allow people to save exclusively for future training needs.
We have a good record in creating institutions with a public service ethos that people trust; there is no contradiction between that and simultaneously creating the markets to meet peoples’ needs.
Third, we should not be afraid to address some of the structural weaknesses of our economy. The financial regulators are already responding to the weaknesses that led to the financial crisis by raising the capital requirements of banks. There is nothing wrong with being a global financial centre; well regulated, it should be a source of pride. But there is something wrong when the property prices in the south east are so different to those in the north east.
The only solution to this is to make property in the south less desirable, and the only way to do that is to tax it to a greater extent. That will make economic activity and talent move north, which will make our economy more balanced, although the political difficulties of the transition will mean it will have to be a phased.
The government should also use tax explicitly to smooth the economic cycle. The next housing bubble should be tamed through aggressive taxation on house sales; the less high things rise, the less far they will have to fall.
Indeed – fourth – we should look again at our entire taxation system. The Mirrlees Review published last year by the Institute for Fiscal Studies put forward an exciting collection of changes that would not only be more progressive and environmentally friendly, but remove distortions in the economy that had the potential substantially to raise the growth rate.
As well as an up-to-date property taxation system, they also propose widespread congestion charging, taxing excessive returns to capital rather than the interest on normal retail savings and finally sorting out the differences in the tax treatment of debt and equity finance.
Finally, government should not favour one form of organisational structure over another. Just as there are good army captains and bad ones, so there are effective and ineffective leaders in both the public, private, mutual and employee-owned sectors. What matters is motivation, and different people are motivated in different ways at different times for different purposes.
A public sector ethos can be a wonderfully empowering environment to achieve change in the delivery of public services, but so can the profit motive for a group of entrepreneurs. Organisations can be set up differently depending on what they are trying to achieve – none of these forms are superior.
The role of government is to provide an atmosphere, locally and nationally, of hope, optimism and empowerment so that as many people as possible can get out there and do what it is they are motivated to do, through whatever route works best for them. That should be our common purpose.