10 challenges facing David Cameron’s new government

If the last five years were about the economy and the public finances (two separate issues, but intrinsically linked), the next five will be about the state of our nation.

The last five years were dominated by tough choices. The next five will be dominated by intellectually difficult decisions.

Upon negotiating his coalition deal with the Liberal Democrats in the days following the 2010 General Election, David Cameron secured himself a Commons majority of 76. Now he has the luxury of leading a Conservative-majority government – but his Commons majority is just 12. Such a majority offers little leeway, particularly given some of the awkward challenges facing the Government over the years ahead.

It would take just six of Mr Cameron’s MPs to rebel in a key vote to diminish his majority to nil. And majorities change over time. People die, or resign as MPs, bringing risky by-elections. Other MPs may cross the floor of the House, though recent precedent (Carswell & Reckless) suggests MPs so doing may be inclined to submit themselves to a by-election.

John Major’s working majority in 1992 was 21. By the time Parliament was dissolved in 1997, Mr Major’s Commons majority was precisely zero. Before he steps down as PM – he says he’ll serve a full term – Mr Cameron could well preside over a minority Government.

Aside from simply holding itself together, what challenges does the new Government face in the years ahead? Some of them are born of the Conservative Manifesto, and others are natural challenges that time will bring.

In no particular order…

1. Our relationship with the European Union

David Cameron has promised a referendum on Britain’s membership of the EU. There is no reason to suppose this will not happen – as promised – by 2017. The vast majority of his party (including many EU-sceptics*) are in favour, and some Labour MPs would also support such a referendum. In the meantime, David Cameron wants to negotiate a more favourable relationship between Britain and the EU. This could include reforming the EU itself.

I stand ready to work with you to strike a fair deal for the United Kingdom in the EU and look forward to your ideas and proposals in this regard.

Jean-Claude Juncker
President of the European Commission
8 May

The European Union is in great need of reform, but securing the change sufficient to mollify the British public in 2017 will not be easy.

For a thorough examination of the merits or otherwise of ‘Brexit’, check out David Charter’s book – “Europe: In or Out” – balanced and brilliant.

* I prefer the word ‘EU-sceptics’ because ‘Euro-sceptics’ is not a good fit. Most sceptics’ beef seems to be with the EU as an institution, and not with Europe.

2. Scotland’s place in the Union

As agreed following the independence referendum, further power needs to flow towards Scotland. The nation now has 56 SNP MPs of 59 in total. The others are merely one Labour, one Lib Dem and one Conservative. In 2010, just 6 SNP MPs were elected. The sea change, almost wiping out the other parties in Scotland is likened to a tsunami.

If the UK is to remain intact, devolving further power to Scotland is only the beginning of an challenging healing process. Nowhere is that healing more needed than within Scotland itself where brothers and sisters, fathers and sons are pitted against each other in their vision for the future.

My friend Pete has suggested that David Cameron and Nicola Sturgeon now have a responsibility to model effective cooperation with each other in the years ahead. Fervent disagreement need not mean enmity.

3. “English votes for English laws”

It’s in quotes because it’s David Cameron’s formulation. But by 2020, we will be a generation on from the introduction of devolution to Scotland, Wales and Northern Ireland, and the West Lothian Question is yet to be answered.

The question was first posed in 1977 (the year Star Wars was released) by Tam Dalyell, the Labour MP for the constituency in question. He wondered about the anomaly of a system in which he (as a Scottish MP) could vote on issues pertaining only to England, while he could not vote on the same issues pertaining to his own constituents.

With the prospect of even more power flowing north to Scotland, and likely the devolution of corporation tax to Northern Ireland, English voters are increasingly disenfranchised on some issues. The issue will only become even more pressing if the next government relies on Scottish, Welsh or Northern Irish MPs to manage its domestic agenda in England.

Precisely how to answer the West Lothian Question is the challenge. Different answers seem to favour different parties, but then that is the nature of devolution. Without doubt, the question must be put to bed.

4. A divided nation

The Conservatives have an overall majority. But they must govern alone with a majority of just 12 over Her Majesty’s Opposition. And although the Tories increased their share of the vote (ever so slightly) to 36.9%, opposition to the Tories amongst the remaining 63.1% is often quite intense, to the point where it’s little wonder so many Tories are ‘shy’.

As we conduct this vital work, we must ensure that we bring our country together.

As I said in the small hours of this morning: we will govern as a party of one nation, one United Kingdom. That means ensuring this recovery reaches all parts of our country from north to south, from east to west, and indeed it means rebalancing our economy, building that northern powerhouse.

David Cameron, victory speech, 8 May 2015

For the first time since 1832, a different party topped the polls in each of the UK’s four nations: the Conservatives in England, the SNP in Scotland, Labour in Wales, the DUP in Northern Ireland. Each nation has its own unique challenges, and the devolved administrations can be held only partly responsible for meeting them.

The Government needs to demonstrate it recognises the disparity between the four nations, and also the huge variance inside each nation. A rebalancing of the economy, particularly the private sector, to struggling areas is crucial. George Osborne’s Northern Powerhouse agenda is an important step forward in this regard. A success story here should help the Tories politically, as it would help the North of England economically.

One-nation Conservatism, if done properly, could be David Cameron’s attempt to fight Labour on its own territory – as boldly and as effectively as Blair raided the Tories’ turf 20 years ago.

Fraser Nelson, writing in The Telegraph, 9 May

Like Disraeli before him, David Cameron is a ‘one-nation Tory’. He has promised the Conservatives will “govern as a party of one nation”. Now he needs to get on and do it.

5. The Human Rights Act

The new Justice Secretary Michael Gove has confirmed the Government will scrap it, replacing it with a British Bill of Rights. The HRA is controversial. Scrapping it would be equally controversial.

Few would argue with the core principles of the Human Rights Act, but there is concern about how it has sometimes been applied, giving undue comfort to foreign criminals facing deportation from the UK, or to others who have shown no mercy to their victims.

But until now, Britain has had great moral authority on matters of human rights on the world stage. How would that authority be damaged if we abandoned the HRA? Mr Gove should tread carefully.

6. Deal with the “housing crisis”

The free-market economist Andrew Lilico has argued that there is no UK “housing crisis”, but we certainly live in an era where home ownership is becoming unattainable for more and more people, many people live in overcrowded homes and, in some areas, there are long waiting lists for people hoping to access social housing.

Like many of the other issues on this list, I don’t know the answer to the housing challenge, but I spent several years on the board of a housing association, Poplar HARCA, in east London. I have seen the struggles of people living in overcrowded conditions, and of others in need waiting interminably for social housing.

The so-called bedroom tax (or spare room subsidy/under-occupancy penalty – delete as you prefer) is flawed, not least because many of those affected have been unable to downsize because of complex personal circumstances or the lack of availability of smaller homes. Despite the proliferation of the ‘bedroom tax’ expression, it is, in fact, not a ‘tax’ – but the financial impact on those affected is real. Many of them have had little leeway in their personal budgets to accommodate this penalty.

However, as I argued within Poplar HARCA a decade ago, there is a case for periodically reviewing people’s housing needs to free up social homes for people who need them and larger homes for growing families. Inevitably this points towards incentives for those with lesser needs to accept smaller homes or leave the social housing sector altogether. How to get this right? I do not know.

I am fortunate enough to be on the second rung of the so-called housing ladder. I am only here because other good fortune (along with a pinch of foresight and a ladle of hard work) helped me onto the first rung in 2002.

House prices have risen significantly. The home I bought 13 years ago is worth twice that today. As things stand, millions of millennials will struggle to get onto the housing ladder at all.

For those with secure tenure, London is becoming a polarised city – wealthy home-owners, and the poorest in social housing with lifetime tenure. Many others are renting on short contracts paying more than a mortgage for a home they will never own and considerably more than social rent for a home they could be turfed out of in 12 months.

I don’t want to see a housing crash, nor do I want to see onerous burdens (such as rent controls) imposed on private landlords. I am nervous about the special assistance offered to first-time buyers that merely serves to stoke demand and push up prices further.

Evidently we need more homes across the country, but particularly in certain areas. All sorts of excuses have been offered by successive governments about the lack of house-building. Lack of funding, planning logjams and land-banking are all blamed.

Whether or not the government itself should building new homes is academic. But by 2020, it ought to be able to laud a million or more new homes built under its watch.

7. The relationship between work and welfare

Iain Duncan Smith is widely seen as a reforming Work and Pensions Secretary, particularly for his work on welfare (also in his brief). The relationship between work and welfare is certainly in need of reform though it is safe to say Mr Duncan Smith’s efforts have not been without controversy, stirring up discontent both amongst some of his own Conservative colleagues and probably most of his Labour opponents – for different reasons.

The Coalition Government oversaw 1.9 million more jobs during its term of office, and the Conservative Government pledges a further 2 million over the next five years. It needs to address the critique that many of the jobs are born of zero-hours contracts. Such contracts have been much-maligned, and while they are just right for many workers, they clearly offer too much uncertainty and too little work for many other workers.

The last government tried to simplify the welfare payments mechanism through the Universal Credit. There is clearly more to do on this. Furthermore, the welfare trap must be abolished. The system should be fair to those who cannot work whilst acting as an incentive to those who can. David Cameron has said work is the best route out of poverty. This may be true, but many workers enjoy little or no real benefit for every extra hour at work.

Finally, the Conservative Party promised in its manifesto to cut a further £12 billion from welfare (excluding pensions) to help meet other spending priorities. No indication has been given thus far as to how this might be achieved. It has been suggested that this policy was designed purely to be abandoned in coalition negotiations. With an overall majority, David Cameron has promised the manifesto will be implemented in full. But on this pledge, his Government should tread carefully. The social and political consequences of this cut could be severe.

8. Airport capacity in the South East of England

The Airports Commission has said there is a need for an additional runway in the South East by 2030. It has shortlisted three options: two at Heathrow and one at Gatwick.

The overall plan is politically controversial.

A prominent west London Conservative MP, Zac Goldsmith, would resign his seat if one of the Heathrow plans is approved. The Mayor of London, Boris Johnson, now an attendee of David Cameron’s political cabinets, is opposed to all the shortlisted options, preferring his own ‘Boris Island’ proposal, east of London.

Some environmentalists say no expansion is needed, and that the environmental cost of increased air traffic outweighs the economic benefits. I have some sympathy with this view. While current trends suggest the extra capacity is necessary, we may be in quite a different world by 2030, with relatively less need for business travel than today. But I am concerned that this assumption could be risky in an increasingly globalised and competitive business environment..

This government will need to decide how to proceed.

9. The future of the BBC

John Whittingdale was appointed Secretary of State for Culture, Media and Sport in the post-election reshuffle. The Telegraph’s immediate response:

Mr Whittingdale is an opponent of the TV Licence, from which the BBC draws the vast majority of its income. However, as chairman, recently, of the Culture, Media and Sport Select Committee, he seems to accept that there is “no realistic alternative to the licence fee” in the short term.

I have my own concerns about the licence fee:

  • It is like a regressive tax, insofar as the poor pay a higher proportion of their income towards it than the rich.
  • It is increasingly unfit for the current era because more and more consumers primarily use PCs and other media devices to access on demand content, avoiding the burden of the TV Licence altogether.

As a BBC staffer, I am concerned about any threat to its funding, but I am a big supporter of its commercial operations, as a former producer with BBC World News, our international commercial news TV channel. I am certainly concerned about a government ‘at war’ with my employer, though I believe there might be some hyperbole here.

The BBC’s charter is next up for renewal next year. The Government and the BBC will need to work carefully together to secure the organisation’s future.

10. Taxation, spending and the deficit

George Osborne has promised to eliminate the deficit by 2020.

His party has promised to ring-fence the NHS budget, increasing it in real terms every year and by a minimum of £8 billion in real terms over the lifetime of the parliament. It has also promised to maintain its International Development budget at 0.7% of GDP, which probably means a real terms growth year on year. And there is pressure on the Prime Minister to increase defence spending to 2% of GDP (a Nato obligation).

Last month, David Cameron promised a law “guaranteeing no rise in income tax rates, VAT or national insurance before 2020”.

I am a member of what Ed Miliband might have called the ‘squeezed middle’. I have what might ordinarily be seen as a good salary. I pay tax at the higher rate. But, as the main earner in a small nuclear family with a dependent toddler, I am a long way short of the skiing classes. We have a suburban bungalow in a nice area. Our car is a 1999 VW Golf which we are saving to replace. Holidays are aspirational and occasional rather than routine.

I am well aware I live in great comfort compared to many of my neighbours locally and further afield. But sometimes I wonder: was higher rate tax really intended for the likes of me? I think of all this and conclude:

  • It would be nice to pay less income tax (of course it would!)
  • It would be great to see VAT (a regressive tax) back at 17.5%
  • It would be politically untenable (and arguably economically unwise) for this particular Government to bleed the rich at 50% or more of their marginal income.

But now we have pledges to cut the deficit, increase spending (at least in certain areas) and a personal plea for tax cuts. This unholy alliance of aspirations is clearly impossible in a static economy. It might just be possible in a strong and growing economy.

The state of the nation may be the theme for the years ahead, but the economy and the public finances still matter!

Conclusion

These are my ten challenges for David Cameron’s new government. Meeting them all will not be easy, but failing to meet any of them would be a disappointment.

David Cameron has other especially political challenges ahead.

  • A constituency boundary review will be a necessary priority, to correct an historic electoral imbalance against the Conservatives.
  • Party management could be difficult, as it was for John Major.
  • And, given the reaction in some quarters to the Conservative victory, the detoxification of the party’s brand has some way to run.

For good or ill, Mr Cameron says he’ll step down by 2020.

Then – finally – he can chillax.

Where are they flocking from?

Gillian Duffy was a lifelong Labour voter who told Gordon Brown she was now “absolutely ashamed of saying I’m Labour.”

Mrs Duffy raised a number of issues with the PM: crime; tax on pensions; national debt; immigration and student tuition fees. She spoke forcefully and he responded persuasively in a four minute exchange. Afterwards he dismissed her as a “bigoted woman” in a private conversation.

Why?

You can’t say anything about the immigrants, because you’re saying that you’re a… But all these eastern Europeans what are coming in, where are they flocking from?
(Gillian Duffy, Rochdale, 28 April 2010)

One assumes they may be “flocking” from eastern Europe!… Mr Brown thought the encounter was a “disaster” and the idea of talking to her “ridiculous”. But really the encounter was fine. It was a heated discussion, probably uncomfortable for him, but not particularly harmful. And after the conversation, Mrs Duffy told the BBC she would probably still vote Labour, though perhaps that is now in doubt.

The infamous exchange (from BBC News)

A deception?

My only complaint with Mr Brown’s handling of the conversation was on the issue of debt.

How are you going to get us out of all this debt, Gordon?
(Mrs Duffy)

We’ve got a deficit reduction plan to cut the debt by half over the next four years.
(Mr Brown)

If only that were true… At the end of March, the public sector net debt was £771.6 billion (excluding financial interventions). That is a lot. In the year ahead, our interest payments alone are projected to be £43bn.

£43 billion.

That is more than the government proposes to spend on defence. It is twice the budget for transport or half the budget for education.

It is more than the government expects to raise in corporation tax. It is over half the VAT take.

It’s not as if we can afford to spend so much on interest. Last year alone, the government deficit was £163 billion. It spent £163bn more than it raised in taxes. This is not just a number; it is an obscene amount to borrow.

Alistair Darling’s plan is to cut the deficit by half over four years. If he is successful, in four years time we will borrow just £82bn. The deficit will be half what it is now, but the national debt will not be. It will have risen by hundreds of billions of pounds. Any budding chancellor should read my blog on debt: good, bad or ugly?

Gordon Brown told Mrs Duffy he would cut the debt by half over four years. Obviously, he meant the deficit. A slip of the tongue. The difference is profound, but the language is deceptively subtle. Cutting the deficit by half may sound great, but the burgeoning debt draws us ever closer to economic doom.

“A sort of bigoted woman”

I must digress no more. What Gordon Brown said after leaving Mrs Duffy was more damaging for him.

She’s just a sort of bigoted woman that said she used to be Labour.
(Gordon Brown, oblivious of his personal microphone)

Perhaps he was right? Mrs Duffy selected eastern Europeans to illustrate her immigration concerns. Perhaps she is a bigot?

She seemed to acknowledge the issue could get her into hot water: “You can’t say anything about the immigrants, because you’re saying that you’re a…” It’s impossible to know what she almost said, but I’ll hazard a guess: she was concerned about being labelled a racist. However, she persisted and made the point, somewhat ineloquently, that immigration is too high.

I don’t believe her primary concern is eastern Europeans. I believe it is immigration. For her, recent immigration is characterised by eastern Europeans. It’s a reasonable perception. A million eastern Europeans have registered to work in the UK since the jobs market was opened to them in 2004. I believe she would have been equally concerned about immigration to Rochdale from Spain, China, Australia, Birmingham or, God forbid, Northern Ireland.

That is my perception, and I may be wrong. But Mrs Duffy seemed to recognise the danger of talking about immigration. Even the Prime Minister hears the word ‘immigration’ and thinks ‘bigot’. Mrs Duffy was evidently upset when learned what he’d called her.  He later visited her to apologise.

Gordon Brown hears his error on The Jeremy Vine Show (from BBC News)

Immigration is an important issue. We must be allowed to discuss it. There are many arguments in favour of immigration. There are strong arguments against it too. But even if debate was clear cut, if immigration was acknowledged to be A Good Thing, there will be many who remain concerned. Those concerns should be addressed, not ignored or dismissed as bigotry. That approach has given succour to the BNP, and that is – in my view – A Bad Thing.

Click here to compare the main parties’ immigration policies.

Gordon Brown should have learned from John Major’s error in 1994. He probably has ‘bastards’ in his own cabinet too, but all politicians know that a microphone has only one job, and that is to listen. He must be careful what he says when a microphone is listening.

Who do cider drinkers vote for?

I was impressed by Alistair Darling’s budget on Wednesday. Politically, it was hard to fault. Economically, he played it safe and didn’t upset the markets.

Evidently the Budget deficit needs to be tackled. Otherwise the credit ratings agencies will become tetchy and credit will be harder to come by. The big question is: how soon should the deficit be reduced? Are savage cuts the way forward? Or do we simply need to make a start? The main parties are divided on the issue and so are economists. But the political gap has closed a bit. Nick Clegg is no longer calling for savage cuts and the Conservatives’ tone was much more hawkish several months ago.

The government plans to halve the deficit in four years, despite European Commission encouragement to act quicker. Their argument is that to cut quicker would harm the economy still further.

There were no great economic revelations in the Budget. The big decisions, the painful ones especially, will come later. That political judgement was straightforward. But aside from that, Mr Darling played a dextrous hand.

Among his cards, the decision to grant a two year stamp duty holiday to first-time buyers of homes up to £250,000 (neglecting a nod of courtesy to the opposite benches for the idea). It’s paid for by an increase in stamp duty on £1m homes. Not for two years, but permanently. I can’t imagine this will cost Labour too many votes.

And this one’s inspirational: a tiny increase on a pint of beer (2%) alongside a much larger increase in cider (10% above inflation). Beer drinkers will feel they got off lightly. Who do beer drinkers vote for? Probably any and every party (though traditionally Labour!) Meanwhile, who do cider drinkers vote for? Here’s a clue:

Cider duty up - costly for Labour?

Cider duty up - costly for Labour?