Peter Mandelson made the following speech to the National Association of Pension Funds – read the edited highlights here:
I have been told that a speech about something other than pensions would be welcome this afternoon, that you need some contrast, some light relief.
I cannot promise the latter. I am afraid the economic outlook is a bit too dire for that. And having passed from public office to the commercial world, I am wary of political controversy.
However, I am still the Prince of Darkness – or the Dark Lord as I became on my return to government from Brussels – so you would be surprised if I had nothing to say about the current political scene. And I want to focus briefly on three aspects of it – the need for future regulatory stability of our economy and its financial system; realism about the future of public services and our industrial base; and what I regard as a threat to our EU relationship.
Coming out of the party conference season, a few things struck me about the leaders’ speeches.
Nick Clegg’s was a bold reassertion of the coalition’s purpose and the role of the Lib Dems in it. With some courage, he seemed to be saying that, difficult as it is for his party, they have no alternative to seeing it through until the end date of 2015 but, after that, the party could go either way in a future coalition, left or right, depending on the result of the general election. So that puts a lot up for grabs.
Ed Miliband, with equal boldness, said he was going to pitch his tent in the political centre ground with a strong One Nation appeal. Predictably, some said he is signaling right while turning left. I don’t think, though, we should underestimate the strategic significance of what he is doing. It may not be New Labour but it is clearly not old Labour either.
And David Cameron’s speech was also blunt. I happen to agree with two of his statements. That people do not vote to make themselves worse off and that personal aspiration and opportunity need to be at the heart of a government’s policies.
And, second, that it is crunch time for Britain. As we struggle through this very difficult decade, the economic and fiscal course we follow, and the foundations we lay, will determine our future economic growth and success.
As a country, our options are severely constrained by the process of de-leveraging – sovereign, bank and household – that is taking longer than most anticipated and the fiscal retrenchment that is going to remain with us for the foreseeable future.
We will look back on this decade as one of lost growth, a reversal in the upward trend of public spending, reduced incomes and living standards for those in work and a smaller welfare safety net available to those in need. It is not a happy experience – and it is not going to be fundamentally different whoever is in office.
Both the right and left are going to have to concede something – the right, higher revenues flowing from better off individuals into the exchequer; and the left, lower social entitlements. There is no option. The challenge is to make this as fair and equitable, and least harmful to incentives, as possible.
Whatever happens, we can be assured of a bumpy ride because the public are very anxious about these worsening conditions.
Across Europe, we are seeing electoral volatility as support shifts from the mainstream to the margins, and I believe Britain will experience some of the same phenomenon.
Before the financial crisis in 2007-8, the mainstream parties of the centre right and left commanded around 75% of the popular vote, making governments, including coalitions, easier to form and sustain. This year, that proportion has fallen to around 57%, with the resulting impact on governments everywhere.
In Britain, we have relative political stability but even we have been forced by greater political fragmentation into our first peacetime coalition for over seventy years. We are not producing the lurches to right and left that other European countries are experiencing but, even so, the Labour Party is making efforts to pick up votes that have gone to the left and the Conservative Party, terrified of the rise of UKIP, is making similar efforts on the right. I shall come back to this in relation to Europe.
Amid this political turbulence, the risks of making short term policy mistakes are growing.
Take the financial system and the regulation of banks as an example. You are not going to hear a defence from me of the banks’ record in risk management, corporate governance and vulgar rewards after the worst banking crisis in history. The public have to be protected from the banks’ irresponsibility – indeed they themselves have to be protected from their irresponsibility.
Without doubt, we need to see a return to the days when quality rather than quantity were at the heart of the financial system. When conflicts of interest did not abound, when practices were not driven by extreme financial engineering and profit-making and when companies and individuals could rely on financial advice that was truly independent and objective.
So it is right that Vickers is going to be implemented and it is inevitable that Tyrie will offer tough recommendations about the ethics and culture of the financial sector.
But we also have to remember that however laudable the aim of re-inventing capitalism to make it more responsible, it also has to become more productive. These are not opposites, on the contrary.
But perpetual debate about acceptable safeguards, about what further inquiries are needed into the past, and repeated threats of regulatory change in the future run the risk of simply de-stabilising the financial sector without bringing about additional beneficial change within it.
We will not secure economic growth without banks and capital markets capable of funding it. So let’s digest and fully implement the current reforms and then make stability the priority to ensure finance gets back on its feet.
Stability is also relevant when it comes to the public sector.
I am not going to get into whether or not the coalition’s NHS reforms were necessary or timely. What’s done is done. The same goes for Michael Gove’s ‘free schools’. I just do not think that, following a further change of government, another round of see-sawing in how we run our schools and hospitals is desirable, affordable or good for those who work in them.
This sort of short-termism is the bane of Britain.
In too many areas, it seems, government has to stop and undo what its predecessor has done. Then it takes a couple of years to learn and realise that the over-reaction was unjustified and to set about repairing the damage, often with similar policies to those it originally abandoned. Labour did this in relation to NHS reform in the late 1990s onwards, regarding the provider/purchaser split and the use of public and private resources.
We saw a further lamentable example from the coalition in industrial policy. At the beginning of the New Labour government, when I was at DTI, I was not a great fan of industrial interventionism.
The experience of the 60s and the 70s hung over us like a cloud. We concentrated on the supply side – skills and R and D, and improving the business environment – but there was more we could and should have done in combining government investment and private enterprise in the sectors, markets and technologies we could judge Britain had a future in.
So when I returned to government, having had my European continental eyes opened to what intelligent and strategic governments did, for example, in Germany and Scandinavia, even in France, I embarked on policies of ‘industrial activism’.
We had to re-balance our economy from an over-dependence on the financial sector. It was plain for all to see. We needed more advanced manufacturing – less financial engineering, more real engineering, as I kept saying.
But I was accused by the then opposition of travelling round the country like a Bourbon king dispensing gold coins and writing cheques with money I didn’t have. And when they came in to office, ‘industrial activism’ was stood down in deference to deficit reduction.
And now ? Two years later the coalition wakes up and offers us a growth plan, industrial policies and intervention by courtesy of the much-depleted Business department – with no acknowledgement I might add for the reckless tearing up of my policies in the first place.
I say this not to score points but to make a point. Too often in Britain, unlike other countries, we do not prize continuity or long-term planning. We do not realize that every disruption of policy, regulation or investment, done in an instant, then takes years if not decades off our performance and ability to deliver as a nation.
You only have to look at what is being put at risk now in Britain’s energy renewable and nuclear strategy to see the dangers.
Which brings me to Europe.
Through a mixture of prejudice, policy confusion and political fear, the coalition is limbering up for another short-sighted excursion in its European journey.
David Cameron, I get the feeling is pretty ambivalent and would rather the whole subject go away. But the backbenchers behind him want blood – Europe’s – whatever the cost to Britain’s place both in Europe and the rest of the world. For them, it is part dogma and part fear of the rise of UKIP.
So, this week we have seen the Home Secretary throw a bone to them in the prospective abandonment of Britain’s use of the European arrest warrant and other joined up, European actions against international crime.
Next month, Britain is threatening to veto the EU budget. The negotiation has consisted of Britain insisting that its opening position is its final one.
Then in December, Britain is signaling that future treaty changes to make the Eurozone work will be boycotted by us unless the terms of our EU membership are re-negotiated at the same time, on terms dictated by us.
And so it goes on. What is clear to me from my visits to Brussels and other national capitals is that our European partners are losing interest in us.
Once, they would have considered anything to keep us on side and they are still nice to our faces. They still firmly want Britain in not out. They like our influence and outlook.
But not at any price. Berlin, for example, is bothering less with Britain’s foot stamping strategy. Our staunch allies elsewhere will drift away if they see Britain as destructive rather than constructive.
The Polish Foreign Minister, a staunch anglophile, said recently in a speech to his British friends: “The EU is an English-speaking power. The single market was a British idea. A British commissioner runs our [EU] diplomatic service. You could, if only you wished, lead Europe’s defence policy. But if you refuse, please don’t expect us to help you wreck or paralyse the EU”.
He went on:
“Do not underestimate our determination not to return to the politics of the 20th century. You were not occupied. Most of us on the continent were. We will do almost anything to prevent that from happening again.”
These words are typical of what I am being told all over Europe by people who regard themselves as naturally close to Britain.
We should have only one European priority at the moment: making sure the Eurozone survives. Whatever you thought of the idea of creating it, there’s only one idea worse and that’s encouraging it to fall apart, with all the economic consequences that would bring.
So we should be pragmatic in the long term and supportive in the meantime, keeping our channels open and not burning our bridges – that is, keeping the UK in close enough orbit to the Eurozone to allow for a correction of course in time if circumstances change.
In due course, depending on whether a Eurozone Mark 2 manages to emerge, we may want to secure some form of associate membership to it by cooperating on the bulk of the treaty changes needed to bring about its durability.
Instead, we are bombarding our partners with selfish demands while they are coping with the crisis. It is like negotiating with a fire engine on its way to a fire. Our actions are looking like sabotage and the patience for paying for British exceptionalism is running out.
Hard Eurosceptic instincts are at risk of provoking an irreversible – or less reversible – break. We must stop painting ourselves into this corner, starting with the budget and then future treaty changes.
Let me say this in conclusion, not just about Europe.
Long-term thinking, continuity and turning down the heat of our deeply adversarial style in Britain is badly needed. Of course political and policy differences are at the heart of democracy. I have not entirely lost my enthusiasm for the battlefield.
But excess disagreement is becoming a luxury which, in our rather parlous state, we can less afford. Banks, the financial system, public services, industrial policy and Europe are, in my view, key areas of public interest where joined up thinking and action are preferable to continuing disruption.
It is not the end of politics as we know it. But it should be the beginning of better government as we need it.