Cut Costs to Compete

Sheila Lawlor

Monday 23rd December 2013: Britain must review more than benefit tourism if she is to compete in world markets, says Politeia’s director.

Christmas appears to have become the season for point scoring for some of the political classes. They have attacked Conservative plans to restrict benefit access for new wave Romanian and Bulgarian immigrants. While the Liberal Democrat leaders denigrate the Tories for being the party of Enoch Powell, the accommodating political cartoons liken curbs on immigration to the Holy Family’s being refused a room at the inn in Bethlehem. The pro-Europe ‘British Influence’ group on its website recently used a similar analogy in a cartoon of Nigel Farage, the leader of UKIP, as the inn keeper gesturing ‘full up here’.

In fact, the inn keeper in the Bible is not depicted as a heartless xenophobe: the population of Judea, then a client state of the Roman Empire, was required to register for the Census being taken by Rome and the town was therefore crowded beyond capacity with citizens of wider Rome; offering a place in the stable was a generous, practical idea. But the analogy is intended to smear, in a way which cheapens and damages the traditions of British democracy and distracts from the central problem which must be solved if this country is to have a prosperous economic future: the size of the state as measured by the cost to its people.

Today government spends just under 50 per cent of the UK’s earnings. Social security and benefits spending is the biggest item and, together with healthcare and education, it makes up almost two thirds (60 per cent) of the total. It is hardly surprising that the plan now is to limit benefit payments to new EU immigrants or make them conditional on having (or being likely to have) a job.

But the UK has a much tougher battle to fight than the spat over immigrants’ benefits. It must now look to curbing public spending and cutting the size of the state. The prime minister’s visit to China earlier this month, a country which has public spending levels of around 25 per cent of GDP and remains the workshop of the world, should encourage a sense of greater urgency.

Mr Cameron’s aim was to encourage Chinese investment in Britain and open new Chinese markets for Britain’s producers. He will know that if Britain’s goods are to compete for a market share in China, the cost of British goods will have to come down and for that, the size and cost of the state will have to shrink, along with the taxes that feed it. Without such a change our entrepreneurs will have little chance of success in a world where Chinese labour costs are lower, and where plans are being laid for extending success. These include plans to make Shanghai a free trade zone; for dual currency use in border cities of the north, to facilitate trade and tourism between the border towns with Russia; for a bonfire of controls to promote entrepreneurship and for extending development to the regions which have not kept abreast of the Eastern strip.

Last week in Beijing I heard from students, academics and think tanks about the problems they too must tackle to remain a twenty-first century economic success: markets must be set free; state capitalism, with its distorting concentration of power in the hands of a central governing elite, moves too slowly to keep ahead of the economic curve and greater openness to market capitalism must replace it. China now seeks to tackle the social imbalances which have resulted partly from rapid industrialisation. There will be greater focus on a social agenda, reforming pensions, providing housing and promoting education and the economic infrastructure needed for regional economic growth across the vast, disparate country.

Yet Britain could bring more to China either than was on offer this month in Beijing or is being offered to the British taxpayers. She could bring an example of how the state can work, efficiently, cheaply and effectively to enable markets to function not only in economic matters, but for social provision, improving quality and bringing down price. It could do so if the government were willing to return to the roots of the welfare state and, like Beveridge, link benefit to contribution. For that to happen, politicians will need to give up point-scoring and engage in the serious possibilities opened by the debate about benefit reform.

*Dr Sheila Lawlor is Director of Politeia where she runs its social and economic policy programme. Her next book will be on post-war reconstruction politics. Last week she spoke to students in Peking University on the development of UK social policy in the 20th century and the future direction for economic and social reform.