As the Conservative leadership election draws to its close, there is feverish speculation about who should be in the Cabinet and what the new PM’s priorities should be as soon as they take office.
These early decisions will be crucial. Personnel is policy. Put the wrong man or woman into a particular department where there has been capture by incumbent interests, such as Defra or BEIS, and that same incumbent voice will feed through into Cabinet discussions – with malign consequences for a reform-minded Prime Minister. On the other hand, if you put in place a fighter with an eye for detail, a forensic interrogation of those departments will soon distinguish between policies that advance reform, and those that embed a cosy status quo.
Above all, the next Prime Minister needs to figure out what their core objectives are – the really crucial things, without which their tenure will be seen as a failure. They then need to identify which departments or ‘stakeholders’ are likely to block the necessary changes, and which will accelerate them. Cabinet members and ministers should therefore be picked on the strength of their ability to accelerate support or deal with blockages.
It is surprising how many ministers simply become spokespeople for their departments around the Cabinet table. The country does not have the luxury of time, and the PM will not have the luxury of simply rewarding supporters and friends, at least in these core areas. Let us hope Liz Truss is deadly serious when she says that, if she wins, appointments will be based on the ability of the person to do the job.
Inflation and regulation
Clearly the biggest immediate challenge facing the next PM is inflation. In a speech on August 6, Governor Michelle Bowman of the Federal Reserve Board set out the major causes of inflationary pressure in the US: Many of them are the same as they have been over the past year or so – supply chain issues: China’s Covid containment policies hampering trade, constrained housing supply, the war in Ukraine, fiscal stimulus, and limitations on domestic energy production.
In the UK, we have been affected by all of these, but our approach to domestic energy production, housing supply and fiscal stimulus has been even more extreme than in the US, which is one of the reasons inflation is affecting us so badly. Among the new PM’s priorities must therefore be to deal with the systemic reasons for these problems, not just slap a sticking plaster over them.
So what are those priorities, and what is the job that must be done?
First, continuing to push out a robust and liberalising post-Brexit trade policy will create wealth in the global economy, and lead to lower prices at home – both by reducing restrictions such as tariffs, but more importantly through liberating the efficiency that an open trading environment demands. Protectionism in all its seductive guises will have to be rooted out aggressively by whoever is in charge of the trade role. Incumbent interests which favour the status quo will fight constant battles on this, and will use departments they have captured to achieve their goals. The trade ministry must be the negotiator in all areas with other departments providing needed input but emphatically not having a seat at the negotiating table. If other departments are at the negotiating table the ability to work out the complex trade-offs associated with a trade negotiation will be lost.
A connected area that needs acceleration is domestic regulatory reform. While all the talk is about how much money the Government will dole out to households, reforming these two areas are both vital to tackling increases in the cost of living. Be in no doubt that they will entail tough fights, and the Prime Minister will need fighters. We will also need to minimise the disruptions by aggressively focusing on the best border initiative. Border management will be key to ensuring goods flow into and out of the country. The UK has boldly announced the desire to have the best border in the world by 2025. The ambition for a Single Trade Window has been significantly accelerated to 2023.
Part of the domestic regulatory reform agenda is to bear down on the high prices facing consumers. The core areas here are energy, transport, housing and capital. ‘Levelling up’ cannot mean simply throwing money taken from one set of poor people to another set of poor people. Because we have had disastrous energy policies, taxes, carbon floor prices and so on since 2008 (or before), we are in a self-created mess – one exacerbated by the war in Ukraine, the Biden administration’s decision to severely limit oil and gas production, and OPEC’s refusal to increase production.
This means we may have to do some things which are unpalatble (to conservatives) to get us through the winter. It is inevitable that some significant transfer payments to the worst off will have to be made. But a focus on fiscal transfers cannot take our eyes off the main prize, which is to significantly reform these ‘lifeblood’ sectors of the economy to ensure that the monthly bills which are spent in the main on food, energy, and housing are brought down. This means massively increasing production (without favouring a particular type of product, or a particular production process we happen to think morally superior), and ensuring that we wring out all the efficiencies in the system that can be wrung out.
It is not difficult to know what needs to be done to lower the costs of these sectors. The Institute of Economic Affairs has just produced a commendable report which contains recommendations for housing, energy, planning and other regulations (see the IEA’s report ‘Cutting Through: How to address the cost of living crisis’). None of these are technically difficult, but they require facing down powerful vested interest groups. The crisis is so severe that if this cannot be done now, it is difficult to imagine a time when it can ever be done.
These are not the only things that matter, to be sure. Of course education and skills matter, not least as they will help ensure labour markets start to loosen in the right areas. Of course, the failing operations of the NHS need substantial reform as well, and arguably this would come under the regulatory reform heading. But the PM will have limited time, and when he or she takes over, she will have to triage the bleeding patient, and first of all stop the self-harm.
Some might consider this a poisoned chalice. Others might recall a similar time of deep distress in the country after years of wrongheaded policies culminating in the winter of discontent and election of 1979. Despite it seeming unlikely for much of her first term, Margaret Thatcher turned around the country and won the 1983 election (after a successfully prosecuted war).
Now, as then, there is an urgent need to turn the country around, to call out failures that go all the way back to 1997, and to unleash the ingenuity and agency of the British people which have been too long shackled by the overweaning power of the establishment, the state and cronyist incumbents. An invisible army awaits.
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