Seven questions the Conservative Party needs to answer

We need to focus on the challenges and implement solutions regardless of how uncomfortable it is for our establishment elite.

In a New Statesman article in April, Tony Blair raised hackles by accusing the Labour Party of settling "back into its old territory of defending the status quo". He said: "The risk…is that the country returns to a familiar left/right battle’ and ‘in the 21st century such a contest debilitates rather than advances the nation". He also asked a number of questions which the Labour Party needs to answer.

The surprising thing about his piece was how much of it I actually agreed with. When the going gets tough, all political parties have a tendency to retreat behind the old clichés; to hide behind the standard lines; avoid facing reality and avoid making the impartial decisions necessary for the good of the country and everyone in it. Playing politics – scoring points - seems almost more important than delivering real results. 

But why is this? It hasn’t always been the case. Over the last month, the policies and actions of Baroness Thatcher have been reassessed. I was struck again by how politically neutral many of her decisions really were – and, consequently, how unpopular they were with the old establishment within the Conservative Party. She was not a popular figure with the Tory grandees. Lady Thatcher looked at a problem and implemented a workable solution. She took actions for the benefit of the many – not just the elite few.          

Like Tony Blair, I think there are questions the Conservative Party needs to ask in a balanced way without fearing the reaction within the party – or the country. We need to focus on the challenges and implement solutions irrespective of whether they fall towards the left or the right – regardless of whose toes we tread on or how uncomfortable it is for our establishment elite.

1.      How can the party ensure the Conservative message reaches both traditional and newly diverse working-class voters?

The working class is changing - and we need to react. According to a recent BBC survey, the new working classes are more culturally, socially and economically diverse than ever before. We must reconnect with the underlying drivers and common interests which unite people by getting our message across that we can provide opportunities to improve your lot in life no matter where you live, your circumstances or heritage. There are plenty of working-class Conservative MPs these days. I, for one, know what it’s like to be poor and to pull yourself up through hard work. But the party has fallen foul of the charges of posh boys and, to an extent, it does seem to many that we are 'out of touch'. We need to get out there and reconnect with everyone, not just the people in the middle and at the top of the income scale – just because we see them as our core voters. I believe we should be focusing our attention on the areas outside the affluent south east, getting some perspective.

2.      How can we unleash the power of entrepreneurship and enterprise, and help businesses grow?

This is a vital question because healthy, growing businesses stimulate the economy and help reduce the cost of living through competition, increased job opportunities and rising wages. Therefore we need to advocate and implement bold measures to encourage growth. We have done good work by, for example, reducing corporation tax but it’s just not enough. We need to start taking calculated risks – cutting taxes for businesses and working people and putting more money back in their pockets. I want to see an enterprising nation with flexible employment: low tax that’s simple to administrate, and a climate where it’s easy to start a business from your living room – and continues to be easy when you start to grow. I want to see businesses compete for employees, with improving terms and conditions without the need for major legislation.

3.      How can we become the party of social mobility once more?

According to the London School of Economics report Recent Changes in Intergenerational Mobility in Britain, ‘the UK remains low in the international rankings of social mobility when compared with other advanced nations’. This is not a situation we can sit back and accept. Lady Thatcher’s legacy will be largely one of implementing policies that enabled social mobility, of encouraging people to get out there and improve their own lives. But what’s happened since? Not much really. The working-class young people of the ‘70s and ‘80s make up today’s middle classes. But there’s a new generation that needs hope and our help right now – and there are the people who got left behind in the intervening years. In an era where classrooms without walls are a reality, where new forms of online learning at a pace and a place of your choosing can make lifelong learning accessible to all, we need to do more to encourage self-progression, re-skilling, and the creation of new and dynamic ways of learning. We need to create policies that make it easy for people to build businesses - even in their spare time, not keep putting barriers in their way and increasing red tape. We need to find ways to put power back in the hands of working people; to give them the tools they need to build their own futures. I want to see a government working to unite people and agree the way forward through consensus; one that avoids needless confrontation and creates the environment necessary to build a hopeful country at ease with itself.

4.      How can the government return power from faceless bureaucrats in Brussels to the British people and create a sense of national self-confidence and control?

This is the biggest issue we face both politically and economically. If Britain is going to grow and prosper we must stop being governed by Europe. We must find a way to get out of the EU clutches and wrest back the powers we need to start building a country of opportunity for all. We need to face the fact that a very sizable part of the country does not want to remain in the EU and if we are to win a majority at the next election we need to put the legislation for an in-out referendum in place within this Parliament. We cannot leave this issue just hanging around. The uncertainty must be removed and a sense of economic and political stability restored so that Britain stands self-confident once again.

5.      How does the party address immigration sensibly without ‘lurching to the right’?

I don’t think we’re moving to the right – but I do worry that as the election approaches it could become an easy way out for the party. People are genuinely worried about immigration, both from the EU and from further afield. The government has done good work in reducing the overall level, but it’s still far too high and the rate of change is still too fast for people to feel comfortable.  By rationing UK citizenship in a fairer way, and severing the link between work visas and citizenship, we can have an integrated and fully functioning society with a bright future. And healthy integration can only be achieved if we have tougher demands on who is actually allowed into our country – both in terms of entitlements to benefits and health services. Our immigration policy must go hand in hand with our economic policy. Only by fixing our broken immigration system can we resolve our financial difficulties.

6.      How do we adequately deal with our aging population?

Currently, 10 million people in the UK are over 65 years old and by 2050 this figure will have risen to 19 million – and of course people are living longer and are healthier in retirement than ever before. It is absolutely imperative for the country that we ensure individuals can support themselves in old age. We must find way to make it easy for people to save for their retirement and avoid perpetuating a dependency culture. I believe we need to move away from state reliance back to forms of self-reliance. I concede this will be painful, but we must begin shaping the arguments, developing the policies and preparing the people for the repatriation of financial responsibilities right now so that our children are not left with the problem we chose to ignore.

7.      How can the party embrace the emerging digital world to transfer power from the state to create bigger citizens?

We need to consider how best to use web applications to deliver more public services and give the public back control of government-held personal data such as NHS records. Public sector hierarchies and bureaucracy may well have been necessary in a paper-based world, but the digital world is different. It can be used to slim down burdensome government public services and eliminate administrative middlemen – and turn the government into an ‘on-demand resource’ – where citizens have complete control of their contact with the government rather than have services imposed on them from above. I also believe there is scope to use the price-comparison website model for public services; as Sean Worth, David Cameron’s former special adviser puts it: "Online comparison sites should be contracted by the government to produce simple league tables to allow people to compare the performance of local hospitals, GPs and care homes." This could be cross-sector, i.e. public, private and philanthropic, and allow for location-sensitive data collection.

Only by asking these questions – without fear - and developing workable solutions can we, as a party, move forward and create a Britain full of hope and optimism. I’ve said it before, but I firmly believe that we need a new kind of politics with a greater degree of courage, self-analysis and straight talking. We have to face the fact that many people feel we’ve let them down. We need to restore people’s faith in the Conservative Party and show people that we will do what we say. We need to be clear about what we are going to do, without equivocation. Only then can we rebuild Britain for the benefit of all.

Adam Afriyie is the Conservative MP for Windsor

A Conservative Party flag flies during the funeral of Margaret Thatcher. Photograph: Getty Images.

Adam Afriyie is the Conservative MP for Windsor

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?