We must ensure capitalism works for everybody
‘The whole [university] system needs to be revamped ... In the long run we should move away from loans’
As Conservatives we believe in a narrative of a property owning democracy encompassing opportunity, personal responsibility, economic freedom, fairness and social mobility. For most Tory backbenchers our view of a decent society was crystallised by Winston Churchill’s description of “a society in which there is no limit to which any man might climb, but a limit beneath which no man might fall.”
In today’s society that belief is being put to the test. One of the reasons that the last election was so close run was that this opportunity, fairness, and social mobility is proving harder to deliver for the generation between 20 and 45 than it was for their predecessors.
This Government will be judged on what it does to deliver decent living standards, job opportunities, home ownership, and a sense of optimism and hope about the future for ordinary people.
This after all is what capitalism is about. This newspaper has run a first-class campaign calling for more robust defence of capitalism, and they are right. But the nation’s leaders must ensure that capitalism delivers for everybody, because when it fails to do that it opens the door to the chaos that socialism has always visited on this country.
So what are Tories like me looking for in tomorrow’s Budget? Well let us start with Churchill’s definition of a decent society. Both the ladder of opportunity and the social safety net are determined for the least well off by our welfare system. Because of the parlous state of the economy after Gordon Brown, the coalition started on a tough programme of cost reduction, and this inevitably bit into the welfare budget.
This has now gone too far. The Chancellor has to put at least £2billion back into Universal Credit, or risk crippling one of the most necessary reforms in modern Britain.
The next most important way to help people make the most of their lives is through education and training. Unfortunately today the cost of getting a university education and the confusion about its financing acts as a disincentive to undertaking a university education, inures young people to relying on debt, and undermines their incentive to improve their income.
The policy has failed on several fronts. About a half of the loans will never be paid, so they are a falsehood in the national accounts; they have not delivered a market in university education, with the least valuable course at the worst university costing precisely the same as the most valuable courses at the best universities: and at least some of the money has gone not into world class research, but into overpaying some fairly second rate vice-chancellors.
The whole system needs to be revamped, turned into a proper graduate contribution system, with honest accounting, clear rules and no retrospective changes in the interest rates or other terms. In the long run we should move away from loans altogether.
On housing, only a little over 20 per cent of young people own their own home today, half of the proportion of the previous generation.
Well-intentioned schemes like Help to Buy have simply had the effect of increasing the costs of new homes by some 15 per cent.
The fundamental problem underpinning all this is of course a shortage of homes.
Perhaps the best idea being mooted is that of creating a large number of garden towns and garden villages. Garden villages of between 1,500 and 5,000 houses would have less deleterious impact on the environment than incremental development, whilst being big enough to support schools, shopping centres and bus routes. Landowners where such developments are planned would enjoy huge windfalls, often of £1million an acre. There is no reason why half of such gains should not be used to cut the price of the houses, using an auction mechanism. That way we might get some affordable homes that are not as tiny and constrained as some are today. However we do it, we have to grasp this problem and solve it. The Conservative party was for over 50 years the party of the home owning democracy.
That reputation will be seriously at risk if we do not reverse the trends of the last 20 years.
Today Britain’s social mobility is nowhere near the best in the world, and the problems of income support, badly organised education finance, and virtually insuperable barriers to home-ownership all conspire to make that worse.
However, to think the solution to these problems is just to tax the elderly more is simply wrong. Recently the Chancellor described pension tax reliefs as “eye-wateringly expensive.”
In fact this viewpoint is the outcome of a Treasury analysis of pension taxation which is myopically shortterm. Most pension tax reliefs are simply tax deferrals originally created to encourage people to responsibly provide for their own old age. This is a massive saving for the state, particularly now people are living longer and longer.
Gordon Brown went in for a range of stealth taxes on people’s future pensions, on the premise that most voters did not think about their pension provision very much. It was clever politics and absolutely dreadful economics.
Today a whole range of professionals find themselves facing marginal tax rates of 55 per cent if they make what most will think was reasonable provision for their pensions. This is a ludicrously perverse incentive.
It is time that we began to think more imaginatively about getting the Treasury to act in ways that are designed to deliver the opportunity rich, socially mobile property owning democracy Western capitalism has been so good at fostering.
The Chancellor has, after all, some £13billion more in receipts than expected, after yet another characteristically pessimistic forecast last year. If we believe in that liberal, pluralistic, property-owning democracy then the best way to preserve it is to ensure the current generations enjoy the same opportunities as their parents.