Capitalism in crisis? - Centre Write JESSE NORMAN MP - Bright Blue
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JESSE NORMAN MP MARTIN LEWIS
on responsible capitalism has money on his mind
Centre
Write
Capitalism
in crisis?
Summer 2016 | 1
paul goodman | the rt hon ed vaizey mp | flick drummond | the rt hon lord maude
Contents
EDITORIAL Kamile Stankute 14
Editor’s letter Unlocking potential
Laura Round 4 Pamela Dow 15
Director’s note Skype session with...
Ryan Shorthouse 5 Martin Lewis 17
MARKETS THAT WORK THE RISE OF THE STATE?
FOR EVERYONE Should politicians nudge
Mending markets human behaviour?
Scott Corfe 7 Professor Robert Metcalfe 18
Can we make capitalism healthy? Theresa May: free-marketeer?
Dolly Theis 8 Mark Littlewood 19
Back to work Fixing the broken energy
Flick Drummond 10 market
Making the consumer king John Penrose MP 20
James Plunkett 12 A property-owning Britain
Does business do enough? Alex Morton 22
Bright Blue is an independent
think tank and pressure group
for liberal conservatism.
Director: Ryan Shorthouse
Page 28 The Centre Write
Chair: Matthew d’Ancona interview: Jesse Norman MP
Board of Directors: Rachel Evening Standard
Johnson, Alexandra Jezeph,
Diane Banks, Phil Clarke
& Richard Mabey
Editor: Laura Round
www.brightblue.org.uk
Printers: Aquatint,
www.aquatint.co.uk Page 17 Martin Lewis
Cover and typesetting: discusses mental health
and money
Eleanor Hyland-Stanbrook
Capitalism is core to conservatism Energising the industrial strategy Michelle Hubert 40
The Rt Hon Lord Maude 23 Sam Hall 34 Prosperity through productivity
The conservative state: small, Antoinette Sandbach MP 42
strong and strategic IS DEVOLUTION THE Be prepared
Paul Goodman 26 SOLUTION? Chris Green MP 43
Government for the people Apprenticeship nation
THE INTERVIEW and for the regions The Rt Hon Robert Halfon MP 44
The Centre Write interview: 28 Stephen Clarke 35 Creative prosperity
Jesse Norman MP Two decades of devolution The Rt Hon Ed Vaizey MP46
Paul Masterton MP 36
BRIGHT BLUE POLITICS Reviving the North BOOKS & ARTS
Why I’m a Bright Blue MP Jonathan Moore 38 Exhibition: Giacometti
Neil Parish MP 32 Eamonn Ives 49
Bright Blue research update INDUSTRIAL STRATEGY Film: Dunkirk
James Dobson 33 Spades in the ground Fiona Smith 50
Page 26 Paul Goodman on Page 23 The Rt
creating a smarter state Hon Lord Maude
on pro-enterprise
conservatism
picapital.co.uk
Page 46 The Rt Hon
Ed Vaizey MP on the
importance of the UK’s
fastest growing sector
Page 10 Flick Drummond
outlines how to support
women returners
EDITORIAL
laura round is the
Editor’s letter Editor of Centre Write
and Communications
Manager at Bright Blue
One of the most striking lessons from the last general towards a more interventionist agenda, Mark Littlewood
election is the collapse in the proportion of those aged from the Institute of Economic Affairs (p.19) argues
under 40 voting Conservative. As Ruth Davidson - the that in order to win the next election and to ensure a
Scottish Conservative leader - has written, unstable successful Brexit, the Conservatives needs to passionately
employment and wage stagnation - coupled with high rental advocate for freer markets. Indeed, one of the original
and transport costs, as well as increasing barriers to home Tory modernisers, the Rt Hon Lord Francis Maude
ownership - go some way to explaining why many young (p.23) says that a Conservative Party that doesn’t appear
adults don’t think the current system is working for them. to be passionately in favour of free enterprise and
Capitalism has delivered demonstrable economic successes, wealth creation lacks credibility and authenticity. The
yet people seem to be losing faith in its ability to make editor of ConservativeHome, Paul Goodman (p.26)
their lives better. This is a huge challenge and has triggered argues for a streamlined state. And former Number
significant debate on the centre-right of British politics. 10 adviser, Alex Morton (p.22), outlines what the
The Prime Minister spent her first year in office setting Government should do to boost home-ownership.
out a narrative for a larger role for the state, centred around Earlier this year, Theresa May launched the
“the good that government can do”. This narrative was Government’s new modern industrial strategy. One aim
lost in the general election campaign. As was hard-won of this to reduce inequalities between different regional
successes on the economy by Conservative Governments economies in the UK. The second part of the magazine
since 2010. Nor did the party hammer home positive, explores whether devolution really is the solution to
compassionate, liberal and pro-enterprise values – many fixing this imbalance. Stephen Clarke (p.35) from the
of which, I suspect, are shared by younger generations. Resolution Foundation looks at how the industrial
With the advancement of the hard-left under Jeremy strategy can ensure growth is spread evenly across the
Corbyn, the Conservative Party really must learn from country. Newly elected Scottish Tory Paul Masterton
its mistakes to ensure it wins the next election. Part of this MP (p.36) explains why Conservatives should continue
challenge lies in defending and reforming free markets. This to champion Scottish devolution within the UK.
is a topic covered in my interview with brainy Transport One of the main aims of the industrial strategy is to
Minister, Jesse Norman MP (p. 28), who says the challenge boost productivity. Antoinette Sandbach MP (p.42)
for conservatives is to mend broken markets and not throw points to the importance of innovative education and
its “hands up and run for a certain kind of crypto-Marxism”. close ties with Europe to improve it. Former Minister
The Government is clearly keen to ensure markets for Culture and Digital, the Rt Hon Ed Vaizey MP
are fairer and that consumers get a better deal. Scott (p.46), urges the encouragement of creativity to untap
Corfe, chief economist for the Social Market Foundation talent and explains why the creative industries are an
(p.7), argues that better consumer engagement and integral part of the industrial strategy. The new chair of
bargaining power are necessary for markets to be fair. In the Education Select Committee, the Rt Hon Robert
my Skype session with Money Saving Expert Martin Halfon MP (p.44), argues that Conservatives should be
Lewis (p.17), he explains the link between money and loudly celebrating the apprenticeship revolution. I hope
mental health. And James Plunkett (p.12), Director of this edition of Centre Write helps you navigate through
Policy at Citizens Advice, discusses why non-choices the broad debate around responsible capitalism and,
are damaging the proper functioning of markets. specifically, demonstrate the role the state can and should
With the latest Conservative Party manifesto shifting play in achieving good economic and social outcomes.•
4 | Centre Write
EDITORIAL
Director’s note eliminating the structural deficit. on the ordoliberalism of post-war
Anyway, this theory, among others, Germany, which advocates that a
Ryan Shorthouse distracts from the unfortunate market-based society needs strong
and brutal truth: the public were morals and rules – even government
increasingly exposed to the poor intervention - if is to work equitably
leadership and communication and efficiently. Hence the Prime
ryan shorthouse is the skills of Theresa May during the Minister’s welcome targeting of
Director of Bright Blue campaign. The manifesto, though vested interests and corporate
rich on philosophy and principles, greed, with calls for workers’ voices
lacked clear and concrete policies, in on company boards and greater
So, what went wrong? This contrast to Corbyn’s. The manifesto transparency around the recruitment
summer, there has been much soul- was emblematic, in fact, of May’s first and pay of different social groups.
searching from Conservatives on year in charge: rousing rhetoric in set
why they recently failed to win the speeches, but a lack of any substantial If conservatives are unable
decisive parliamentary majority policies to truly tackle ‘burning to argue that capitalism
almost everyone predicted. injustices’ and support those ‘just benefits most people, then
Two clear points stand out. about managing’. Well, people are not they might as well pack their
First, the substantial polling lead daft: actions speak louder than words. bags now and go home.
the Conservatives initially had The flagship policy in the manifesto Of course it has and does
over Labour narrowed during the on social care – to lift the guaranteed
election campaign. Second, there amount someone could pass on If capitalism is to remain popular
was a considerable shift in voting to their children to £100,000, but and effective, then individuals and
intention to the Labour Party after to include within the means-test corporates do need to behave more
the launch of the manifestos. calculation for domiciliary care responsibly. Markets are motored by
the value of the family home, as is - and have consequences for – human
Cabinet Ministers have not currently the case for residential beings, not just profit; that needs to
been allowed the freedom care – was sensible, but was received be appreciated and acted upon by
and profile to develop particularly badly. The closed clique more people. Conservatives should
distinctive policy agendas, controlling government failed to build not abandon May’s ‘responsible
in marked contrast to those a significant network of individuals capitalism’ agenda, therefore.
under Cameron’s premiership and organisations who could shape Equally, though, Conservatives
and support this policy – and, in need to be much more responsible
Some Tories now claim that it fact, May’s programme in general. in how they talk about capitalism.
is because the public are tiring of Cabinet Ministers, for example, have Some on the Left, especially under
austerity. This is no doubt true not been allowed the freedom and Corbyn, have pushed a simple,
among a small proportion of voters, profile to develop distinctive policy spellbinding narrative about Britain’s
particularly among some public- agendas, in marked contrast to those economic model in recent years: that
sector workers who have experienced under Cameron’s premiership. free-market fundamentalism has been
pay constraint over a number of What May and her coterie did do, pursued by the Tory Government,
years. But it is, frankly, absurd to right, however, was to emphasise and only an elite – the so-called 1% -
think there was such a shift in public that conservatism prioritises have benefitted from this. Too many
opinion against fiscal discipline in the responsibility not just freedom - of on the Right are now swallowing
space of six weeks. And it is perfectly both individuals and businesses. and adopting this story. You can
possible to better support those on This is a social market rather than find it in the words of Theresa
modest incomes at the same time as free market vision, based originally May and her previous advisers.
Autumn 2017 | 5
EDITORIAL
>> It is simply untrue that Tory pack their bags now and go home. the Tory trump cards: economic
administrations before the current one Of course it has and does. There is competence and fiscal stewardship.
only offered the public free-market unprecedented access to travel and This is a call for a sense of
fundamentalism. Under Cameron, technology. Rates of education, perspective, not complacency. There
for example, the Conservatives employment and entrepreneurship are still too many people, as the
increased the minimum wage; are at record levels. According to Prime Minister has passionately
committed to real-terms increases the Office for National Statistics articulated, who are struggling in
in NHS spending; introduced a survey of personal well-being, our capitalist society. And all of us,
cap on the cost of payday loans; most the British public – even in to differing degrees, face day-to-
and announced a sugar tax on fizzy less affluent areas – are generally day challenges where a little more
drinks from 2018: these are not the satisfied with their lives. help from government would be
policies of a libertarian government. Conservatives should reject, not welcome. This is what the Tories
indulge, the attacks on liberal and should focus on now: not petty
The Party’s leadership democratic capitalism. The Party’s philosophical debate, but on devising
needs to be confident and leadership needs to be confident and delivering sensible policies to
compelling champions of and compelling champions of liberal improve lives. Practical help from
liberal values and economics, values and economics, especially if the Conservative Party - not a new
especially if they are to they are to inspire younger people, name, vision or philosophy – is what
inspire younger people, who just voted decisively against the will win them the next election.
who just voted decisively Tories. Indeed, the recent election The Conservative Party needs to
against the Tories campaign and manifesto did not do argue for - and build - a responsible
enough to celebrate some of the real capitalism. But it also need to
And if conservatives are unable to economic successes achieved under be more responsible in how it
argue that capitalism benefits most the Conservative Governments describes the reality of living
people, then they might as well since 2010. It was foolish not to play in this capitalist country. •
LATEST REPORT
Britain breaking barriers
James Dobson and Ryan Shorthouse
Britain is the home of human rights and a global force for Britain
breaking
good. After Brexit, Britain should not just be a global leader barriers
in free trade, but in human rights too. In this country, as a Strengthening human rights
and tackling discrimination
result of discrimination, too many people are still held back
— especially in education and employment — because of
who they are rather than what they do.
After a year-long inquiry led by a commission of high-profile
decision makers and opinion formers, this report provides
a comprehensive and compelling set of policies which can
be used by the current Government for its social reform
agenda to strengthen human rights and tackle all forms of James Dobson and
Ryan Shorthouse
discrimination.
6 | Centre Write
MARKETS THAT WORK FOR EVERYONE
Mending markets
Scott Corfe claims that to save free markets, we need fairer markets
scott corfe is chief value telecommunication, banking The case for tackling this is
economist at the Social and energy companies. In some compelling, not least because
Market Foundation markets such as the private rental the existence of unfair markets
sector, businesses also appear to undermines broader faith in markets,
Many have interpreted the outcomes be taking advantage of the weak full stop. Unless we make markets
of the EU referendum and the 2017 bargaining position of households. fairer, there is a risk of this paving
general election as a rejection of a The consequences of this are the way for a raft of anti-business
market-based economic settlement clear to see. Customer satisfaction measures or even the outright
that is not working for a significant levels are relatively low in abolition of markets – through
portion of the population – both concentrated industries such as nationalisation of industries such
in terms of providing good work energy and telecommunications. as transport and energy. This
and value for consumers. The most vulnerable, least would almost certainly lead to
At their best, free and functioning engaged consumers often face worse outcomes for households
markets are a driving force of job the highest prices. Research by and the economy more widely.
creation, innovation and prosperity. Ofcom, for example, found that
They also increase value for money. landline-only customers – who are The most vulnerable, least
The recent retail price war, which disproportionately likely to be poor engaged consumers often
saw the ‘big four’ supermarkets and old – had seen rental charges face the highest prices
slashing prices in the face of increased increase by up to 49% in real terms
competition from Aldi and Lidl, over the past decade. At the same The will within government to
highlights how competitive forces time, wholesale costs of providing a make markets fairer, with better
can lead to better outcomes for landline service had fallen by 26%. outcomes for consumers, is there.
consumers. Mortgage rates have Despite low costs for credit checks For example, the Conservative
also been pushed down in recent and producing a standardised manifesto for the 2017 general
years as lenders have had to compete contract, tenants in the private election emphasised a need to
hard to win over customers. rental sector have seen a substantial tackle inequality of outcomes
increase in letting agent fees in in the energy market – where
Free and functioning recent years. Tenants, who are disengaged consumers find
markets are a driving force often desperate for a roof over their themselves on poor value deals.
of job creation, innovation head lack the bargaining power So what’s the best route to fairer
and prosperity. They also needed to rebuff excessive prices. markets? Social Market Foundation
increase value for money Ultimately, when consumers are research provides several insights.
disengaged and lack bargaining We think there’s a case for re-
All too often, however, consumer power, and when barriers to examining the relationship between
markets are dominated by a lack competition are high, households buyers and sellers, particularly
of choice and barriers to switching get a raw deal. In these cases, a in markets where consumers are
supplier. Inertia among households ‘free’ market can easily become disengaged or have little bargaining
does not help either – with unengaged what many people would power. The ban on charging letting
consumers often sticking with poor consider an ‘unfair’ market. agent fees is an example of this.
Autumn 2017 | 7
MARKETS THAT WORK FOR EVERYONE
>>But we believe that reforms should those on the best and worst deals techniques to discourage cancellation.
be considered elsewhere. Reverse offered by a company. One approach In particular, this can trap vulnerable
auction schemes in energy, where may be to curb use of rolling consumers in poor deals.
suppliers bid for consumers’ business, contracts, forcing companies to Fairer markets lead to more
could lead to a much more active and inform consumers about better innovation, better customer service
price competitive energy market. deals at the end of a contract term. and lower prices for consumers.
There is also a case for regulators But they do not always come about
It should be as easy to to do more to make markets more naturally. In our view, consumer
cancel a subscription as symmetrical – it should be as easy engagement and bargaining power
it is to sign up for one to cancel a subscription as it is to are necessary for a market to be
sign up for one. A service that can fair – having choice of supplier
It is also worth reconsidering the be signed up for online, should is not sufficient. Government
role and remit of regulators, with a be cancellable online. Forcing needs to recognise this with a new,
greater emphasis on tackling issues individuals to phone to cancel creates radical approach to regulation.
around price transparency and barriers to switching, especially The costs of not doing so are
the inequality of outcomes between if phone calls involve hard selling potentially substantial. •
Can we make capitalism healthy?
The food and drink industry should do more to reduce the burden of obesity on society,
argues Dolly Theis
dolly theis is a going bust, the Government and most vulnerable children who
researcher at the Centre published a plan in August 2016 to are worst affected. By aged five, a
for Social Justice “significantly reduce” childhood child in poverty is twice as likely to
obesity rates in England over be obese than their least deprived
Capitalism is making the wealthy the next ten years. Despite valid peers, and by aged 11 this increases
healthy, but the majority of us fatter. criticisms of its weakness in relying to three times more likely. In
Britain is now the most obese on mainly voluntary actions by the fact, according to National Child
country in Europe. Sixty-eight food and drinks industry, medical Measurement Programme (NCMP)
percent of men, 50% of women and professions and schools, it did mark figures, the obesity gap between
a third of children leaving primary an important ideological shift for the the least and most disadvantaged
school are obese or overweight. Government, away from viewing children in England is growing,
This is not only leading to around childhood obesity as an issue of meaning inequality in this health
70,000 premature deaths each year, poor personal choice, towards outcome is getting worse.
it is also estimated to cost our understanding that our environment,
economy a staggering £27 billion socioeconomic circumstances, Capitalism is making the
annually, which in the absence education, and influence put on us by wealthy healthy, but the
of concerted effort, is expected the food and drinks industry dictate majority of us fatter
to rise to £50 billion by 2050. the choices we are presented with.
In a landmark attempt to address Although obesity is evident in To help the government, industry
the issue and save our NHS from all communities, it is our poorest and public sector address
8 | Centre Write
MARKETS THAT WORK FOR EVERYONE
>> this inexcusable inequality, the
Centre for Social Justice launched
a formal review into childhood
obesity, physical inactivity
and deprivation last year.
A key part of the review will
look at how industry can be
challenged to take responsible
capitalism one bold step further,
by making capitalism healthy.
For too long the food and drinks
industry has got away with its
role in the obesity crisis. Mainly
because the causes of obesity are so
complex and multifaceted. Unlike
the link between smoking and
cancer, there is no one thing that
leads to obesity. For years, scientists,
nutritionists and medical experts
have failed to reach a consensus.
One minute it’s about vilifying fat,
the next it’s all about sugar. This has
allowed the food and drink industry
to dodge their responsibilities
and continue cleverly marketing a warning to industry that, should industry and health professionals to
food and drink accordingly. it fail to address the obesogenic make informed and healthy choices
environment it has helped create and for their children. Government must
Only when capitalism take the necessary steps to remove set a fair but firm framework for
becomes healthy and the advertising and availability industry, putting reducing health
being healthy becomes of calorie-dense, addictive and inequality and easing the burden of
the norm, will we witness unhealthy food and drink, it may obesity on society first. Ultimately,
a significant reduction in face a future like the tobacco and the food and drinks industry
childhood obesity rates alcohol industry, including: plain must make capitalism healthy.
packaging on unhealthy products,
The Government’s Childhood potent health warnings, duties Although obesity is evident
Obesity Plan placed a spotlight comparable to alcohol, and blanket in all communities, it is
on the food and drinks industry advertising bans severely restricting our poorest and most
by announcing a sugar levy on how junk food and drink is sold. vulnerable children who
fizzy drinks and igniting the If industry is to avoid this nanny are worst affected
reformulation of numerous state, serious change must happen
unhealthy products, particularly soft immediately. Choice in children’s Only when capitalism becomes
drinks. This confirms the important diets must be protected from the healthy and being healthy becomes
role taxation, regulation and targets undue influence of the food and the norm, will we witness a
should play in creating a less drinks industry. Parents must be significant reduction in childhood
obesogenic environment. It was also empowered and supported by obesity rates by 2026. •
Autumn 2017 | 9
MARKETS THAT WORK FOR EVERYONE
Back to work
Greater support should be provided to women returning to work after caring, argues
Flick Drummond
flick drummond was MP most important tasks as a society More important are the management
for Portsmouth South and is not currently given enough skills of negotiation that dealing
and chair of the Women recognition. Jess Phillips, on the other with children or elderly parents
and Work APPG hand, went straight back to work brings — skills I see again and again
after six weeks, because she couldn’t sorely lacking in some businesses.
During my short time in Parliament, afford not to and had a husband who
one of the issues I am most proud could take on the childcare. Many For many women having
of raising is the recognition that women are in the same position and children is a defining
women (and increasingly men) who many go back to work before they moment in their lives, not
have been out of paid employment want to because they are worried a blank space on their CV
are a huge pot of talent which is that they will not find a job again.
being wasted by our country. Surveys show there is a huge However, after taking a break from
reluctance for employers to hire a career, something that is lost is
Many women need or someone with a gap in their CV. To confidence, and research shows that
want to return to work, end this, we need to have a change women are particularly prone to
but don’t know where to in values. What if, as a society, we this. Looking at a job specification
start and face significant recognised that gaps in our CVs for and seeing the criteria often leads
challenges trying to do so caring responsibilities are valuable women to believe that they are only
rather than dismissing them? qualified to do half of them so there
Many women need or want to Whilst job hunting, it’s is no point in applying. Men don’t
return to work, but don’t know recommended that there are no gaps appear to have the same attitude.
where to start and face significant in employment history, and marital Encouragingly, there are increasing
challenges trying to do so. This status or children should not be numbers of organisations and
dilemma became the first inquiry included. Why not? Surely, they make employers helping women through
and published report from the All up part of you and for many women the system. But how do we get
Party Parliamentary Group for having children is a defining moment around to telling people who want
Women and Work that I set up and in their lives, not a blank space to return that they are valued and
co-chaired with Jess Phillips MP. on their CV. You don’t lose skills can also pick up skills quickly?
The inquiry came out of a comment whilst at home caring for children Most returners are keen to go that
during the Women and Equalities or elderly parents: you gain skills. extra mile to equip themselves with
Select Committee’s gender pay gap extra training when it is provided.
report, which found that women who You don’t lose skills whilst One of the ways many companies
had been out of the workplace for at home caring for children or can do this is by providing short
more than six months found it difficult elderly parents: you gain skills apprenticeships or by advertising
to find a job. This is a cause close to the job with additional training
my heart. I was lucky: I took five years Any expertise lost in the workplace provided. These ideas give the
off to have four children and loved is most likely to be in either confidence to people that they won’t
being at home with them. Bringing technological or legal changes, but fall down at the first hurdle but
up the next generation is one of our both are easily picked up with training. will be looked after. Mentors and
10 | Centre WriteMARKETS THAT WORK FOR EVERYONE
>> peers should be provided by given women the opportunity to do for family responsibilities, they
employers to support the returner. both. But there is a truth to the cliché will not feel they are able to. There
Flexibility is another issue affecting that when people reflect back on their are examples of companies taking
parents and carers. Taking time off life from their deathbed, they tend to this on and far-sighted managers
to go to parents’ meetings at school wish they had spent more time with tackling the issue by example.
should be a right, as should taking their family and less time at work. The Government should publicly
elderly parents for hospital visits recognise these companies to share
without using holiday leave to do so. After taking a break from a good practice around the country.
Employers need to be more family- career, something that is lost I was very pleased the Chancellor
oriented and understand flexibility is confidence, and research recognised returners and the barriers
leads to a more loyal workforce. I shows that women are they face in the budget this year.
guarantee productivity would increase. particularly prone to this £5million has been put forward
A happier society is a productive to help returners back to the
one, and there are green shoots that So how do we change social workplace. I hope it will recognise
show we are beginning to understand attitudes? I believe it has to start that companies can lead the way. It
this. I recently chaired an education from the top. Some simply assume does not need legislation to change
conference where a Professor stood that the next generation will find a the workplace. It needs leadership
up and apologised for her generation more reasonable work-life balance, to show how it can be done.
getting it wrong. She said the balance but by the time that people get to In the meantime, it will be
had swung too much towards their 30s and 40s with mortgages and interesting to see whether the so-
pushing parents back to work and not commitments, it becomes harder. called ‘gaps’ in my own CV are a
enough towards a work-life balance. If they see their managers working hindrance or a help, as I look for
I disagreed as her generation have long hours and not taking time off work after being an MP. •
Autumn 2017 | 11MARKETS THAT WORK FOR EVERYONE
Making the consumer king
James Plunkett explains how non-choices are making markets unfair and inefficient
james plunkett is the a letting agent, consumers are hit to predict how they might use a
Director of Policy with massive fees - £337 on average service. They charge high prices
and Advocacy at - when they rent a property. The at the point where consumers
Citizens Advice fees themselves vary wildly between have little choice - you can’t get
providers, with letting agents an overdraft from another bank.
Well-functioning consumer charging anywhere from £6 to £300 Another way companies profit
markets run on choice. When to check a reference and from £15 from non-choices is by selling
people proactively choose to £300 to renew a tenancy. People services with complex contractual
products and services they drive don’t choose their letting agent on terms: interest-free credit cards
fierce competition between firms price, so the market is inefficient. which become interest-bearing if
bringing innovation, efficiency, and More common is where companies someone goes over their limit, or car
lower prices - and they’re more take advantage of consumer finance deals with punitive charges
likely to get a good deal too. behaviour when people are unlikely for breaking certain terms and
Too many essential service markets to choose or choices are difficult. conditions. Consumers do not break
take advantage of ‘non-choices’. In the broadband market loyal down that complexity when making
Non-choices are where a consumer customers - those who stay with their choice - the product many
pays, or pays more, for a product their supplier after their initial people end up with is fundamentally
or service without making an contract has come to an end pay different to the one they chose.
active, informed decision to do so, £113 a year more than those who Those non-choices make markets
or where they have no option but choose a tariff. That is not unique. less fair as vulnerable consumers
to take a service from a particular In the energy, mortgage, and are less likely to actively engage in
provider. Too often, non-choices savings markets, where people markets. Nearly 80% of Britain’s
aren’t just unfair, they’re inefficient. don’t make an active choice they elderly, disabled and low-income
pay a high price. Intuitively we households say they haven’t switched
Intuitively we expect loyalty expect loyalty to be rewarded. But their energy bill for three years.
to be rewarded, but in in essential service markets too But markets that are built on non-
essential service markets many companies exploit people’s choices are not just unfair, they’re
too many companies exploit behaviour. Companies know people inefficient too. If companies can
people’s behaviour. Companies lead busy lives and are unlikely to profit from a lack of choice they are
know people lead busy lives switch providers so up their prices. less likely to be competitive. That
and are unlikely to switch Inertia is a clear example of non- means higher costs and higher prices.
providers so up their prices choice, but it isn’t the only one. These challenges, because they’re so
Essential service providers often closely linked with inherent human
At the extremes, the nature of charge high prices when consumers behaviour, often feel insurmountable
some essential service markets use services in an unpredictable - the solutions aren’t always
means consumers have little or no way. In 2014 consumers paid £1.2 straightforward and intervention
opportunity to choose at all. In billion in unarranged overdraft will always involve trade-offs. But
the private rented sector, where fees. Companies know consumers there are ways policymakers can
tenants choose a house rather than are optimistic and find it difficult limit the impact of non-choices
12 | Centre WriteMARKETS THAT WORK FOR EVERYONE
>> on consumers and markets. banned and the upfront costs should would cut energy bills for 2.6 million
Policymakers and regulators should be met by landlords who are more people who are most likely to be
require information about contracts able to choose their provider. vulnerable and least likely to switch.
to be clear and comparable. In the More generally, consumer
broadband and energy markets for behaviour means better information Markets that are built on
instance, even if a consumer wanted is a blunt tool. Consumers, non-choices are not just
to choose a contract based on the particularly vulnerable consumers, unfair, they’re inefficient too
best long-term deal, they’d find it are still unlikely to take long-term
difficult. Information about out-of- decisions which carefully factor in Efficient and fair consumer markets
contact tariffs is rarely advertised. future behaviour. Targeted price caps are driven by choice. Where they
Clearer information only goes should be used to protect vulnerable can policymakers should strive
so far. Where consumers have consumers from expensive default to encourage engagement and
little to no choice - such as over tariffs or from high prices when they active choices. Where they can’t,
their letting agent - the price use a service more than they expect. they should step in to limit the
mechanism should be shifted to The Government should cap energy negative impact of non-choice
where the choice is. Letting agent prices for people eligible for the both to protect consumers and
fees charged to renters should be Warm Home Discount: a step that make markets more efficient. •
Autumn 2017 | 13MARKETS THAT WORK FOR EVERYONE
Does business do enough?
Kamile Stankute on the role of businesses in creating a fairer capitalism
kamile stankute is
the Parliamentary
Affairs Officer at the
Institute of Directors
“It is economic success which will
provide the surest guarantee of
help for those who need it most,”
wrote Margaret Thatcher in 1983.
Her view is, after all, shared by
most economists – that, simply put,
capitalism works better for lower
earners. Nevertheless, many feel that There is of course no easy answer except for all the others” – the same
the current system is not working to how the challenges could could be said about capitalism.
and that markets are failing people. be overcome, but the business It is fair to say businesses recognise
Last month’s general election was community has a role to play. the problems with the current
a clear expression of this growing Businesses should not wait for the situation. Asked what they think
feeling in Britain. With Jeremy government to regulate. They should the biggest threats to public trust in
Corbyn as leader of the Labour get out in front and show that they business are, Institute of Directors’
Party, it was hardly surprising play a responsible role in society. members outlined “anger over
that their manifesto would offer levels of senior executive pay”,
an interventionist programme. The fact that Tories have “unsympathetic media portrayal of
However, the fact that Tories have shifted towards an increasingly business” and “mistrust of products”
shifted towards an increasingly interventionist agenda as the top three. These views aren’t
interventionist agenda shows that the shows that the ‘big state’ is too dissimilar from the public at large.
‘big state’ is becoming popular again. becoming popular again This perhaps explains why only 2%
The benefits of capitalism should be of Institute of Directors members say
self-evident – it empowers individuals It is crucial to remember just how executives should take bonuses in a
to progress, gives them freedom to bad the situation got in the 1970s, year in which a company’s financial
choose and much more. Yet, the when industry strikes were the norm performance is worse than the previous
current climate of stagnant real wages and Leicester Square was piled with years, regardless of the reasons for
makes it easy to forget the advantages. stinking rubbish. The dangers of going declining performance. The Institute of
On top of that, news stories about the other way, to the system where Directors, of course, mainly represents
business figures like Mike Ashley there is no reason to invest in the small and medium size firms. The views
vomiting in a pub fireplace and photos economy, must be highlighted. The of big corporates - that tend to be the
of Sir Philip Green holidaying on solution is not allowing corporatism, ones to dole out excessive bonuses
his £100million yacht after putting but talking about the benefits of - may differ. Nevertheless, the fact
the BHS pension fund into jeopardy capitalism. Winston Churchill once that the problem has been recognised
do not help capitalism’s image. said democracy is “the worst system by the business community on
14 | Centre WriteMARKETS THAT WORK FOR EVERYONE
>> the whole is in itself promising. why those firms for whom it works industry, thereby benefiting both
should not get ahead and begin the their business and workers who
There is no reason why those process of empowering workers’ are in danger of being left behind
firms for whom it works should voices on boards. The appetite for by transforming industries.
not get ahead and begin that is growing and the benefits for Business groups like the Institute
the process of empowering companies are becoming increasingly of Directors also have a role to play
workers’ voices on boards recognised, both in regards to in restoring the public’s confidence
reputation and productivity. in capitalism and free markets. It
There are nevertheless more things Training is another area where the is for this reason that the Institute
that the private sector can do to - business community can show that of Directors has been championing
by tackling excesses of capitalism, it’s a force for good in the society. As the need to improve corporate
business leaders can help to improve we get reminded every other day, the governance and calling for tax
its image. The Conservative manifesto skills gap is a significant problem in reforms for the self-employed.
featured pledges to introduce the UK. The crisis is only likely to Between 1990 and 2010 the number
legislation that would guarantee grow, as the challenge of automation of people living in extreme poverty
workers’ representation on company will make Brexit negotiations look in developing countries fell from
boards. Following the unexpected like a walk in a park. Through 43% to 21%. Global poverty and
election outcome, the commitment providing better training for their inequality are at their lowest recorded
did not feature in the Queen’s staff, private companies can help levels. The benefits of capitalism
Speech. However, there is no reason to build a pipeline of skills in their are clearly worth extolling. •
Unlocking potential
After Brexit, we need more wealth creators. Pamela Dow urges us to look to ex-offenders
pamela dow is in prison don’t read or write to the 69% of prisoners reoffend on
the Chief Reform standard expected of 11-year-olds. release, costing £7-10billion a year).
Officer at Catch 22 People are less likely to commit
In these tribal times it is further crimes if they have the
In these tribal times it is pleasing pleasing to find a public dignity, responsibilities, stability
to find a public policy for which policy for which a compelling and wage that a good job provides.
a compelling case can be made case can be made within You can also argue for it as a
within every political tradition. every political tradition social justice warrior. Prisons are
Judging the success of prisons and disproportionality packed with
probation by how well they educate You can make a capitalist argument people from poor backgrounds, who
and train people into a decent job for future employment as a core have been in care (23% of total, rising
has universal appeal. Seventy-five element of a prison sentence, based to 50% of those under 25), and who
thousand people leave prison each on efficiency and minimising the are from a minority ethnic group
year, of which 75% are unemployed. tax burden. The criminal justice (26%). Education and a good job
No wonder: nearly half of those system's failure is expensive (46- helps break cycles of disadvantage.
Autumn 2017 | 15MARKETS THAT WORK FOR EVERYONE >> You can even mount a libertarian and mental health, and on the outside using digital mentors from tech to defence of a Ministry of Justice whether they have a place to live teach code, lining up jobs at Siemens education and employment strategy: and supportive family and friends. on release. Bounceback, Switchback, if every other institution has failed The current prison reform agenda Working Chance, Prosper 4, Offploy to equip someone with the tools is – slowly – trying to tackle these and Tempus Novo all act as effective for self-sufficiency, prisons and problems, with the most important brokers, within the walls and probation must do this at least (and change being a devolution of budgets, outside. Longstanding champions most). A Marxist argument is easily decisions, expectations and ambition like James Timpson, continuing found in the prize of the withering to frontline leaders and managers. the wonderful legacy of his father, state, by reducing the coerced recruits 10% of his Timpsons, and incarcerated population. You can make a capitalist Snappy Snaps and Max Spielman Given this ideological convergence, argument for future staff direct from prison. Halfords why is the status quo so bleak? There employment as a core have opened a training academy for are both supply- and demand- side element of a prison sentence, the women in HMP Drake Hall. problems. Every prison governor based on efficiency and Restaurateur Iqbal Wahhab not only wants to run a rehabilitative minimising the tax burden employs ex-offenders but makes regime and offer a full timetable of the case to others for doing so as purposeful activity linked to job On the demand-side, the a rational business strategy, not a prospects, supplying a job-ready constraints are similarly huge. Even cosmetic PR or CSR exercise. As he pipeline to eager employers. The when chief executives and boards argues, while those who have served barriers to doing so are huge. They sign up to do more to support time may need extra practical and include the rigidity of national rehabilitation, making changes in pastoral support from their bosses contracts which prevent local their organisations can be like wading at first, they become the most loyal, partnerships with FE colleges and through molasses. The perception reliable and resilient team members, small businesses who understand the that ex-prisoners pose a reputation or often rising quickly to senior posts. market and can build the personal safety threat to staff and customers DHL, Virgin, Greggs, First Direct, knowledge and relationships we is enough for a risk-averse HR Marks and Spencer and The Co-op all know are necessary. ‘Release on department to block progress. Large also deserve recognition for their Temporary Licence’ (ROTL), used employers may sign up in principle efforts to overcome barriers. to be an essential and successful but lose patience with the paperwork part of preparing prisoners for and inflexible regulation, for example Longstanding champions like release but since the notorious blunt Disclosure and Barring Service James Timpson, continuing ‘Skull Cracker’ case in 2014 it is (DBS) checks or punitive insurance the wonderful legacy of barely in use. (A good example premiums. Others would love to his father, recruits 10% of why political leadership and talk to their local prison but don’t of his Timpsons, Snappy courage is so important in defending know how to initiate contact. And Snaps and Max Spielman professional practice during the centrally commanded hierarchy staff directly from prison sensational outlier incidents.) and constantly rotating managers Staffing and violence levels also of the prison service, and fractured After Brexit it won’t be constrain local flexibility. For many probation system, don’t help. possible for the UK to ignore prisoners there are also more barriers There are many trailblazers 75,000 potential wealth creators than just opportunity between them working to train prisoners in the leaving prison every year. The and a vocational qualification. Part skills needed for their workforce first, second and third sectors of their progress towards a job offer pipeline. Code 4000, about to launch will all have to work together needs to address substance addiction in East Riding, is an exciting pilot to unlock potential. • 16 | Centre Write
MARKETS THAT WORK FOR EVERYONE
Skype session with... Martin Lewis martin lewis is the founder
of MoneySavingExpert.com
Laura Round speaks to Martin Lewis about mental and the charity Money
health, debt and student loans and Mental Health
LR Do businesses have to behave more responsibly if market economies are going to work properly and fairly, and if so, how should they?
In some ways I think the push towards corporate social responsibility and responsibility in general is a rather damaging move,
because it blurs the line. A business’s job is primarily to make money for its owners or its shareholders. If we want them to look
after people and try to push them into some warm fuzzy responsibility feeling, which isn’t their job, we need proper regulation
and policies. It is nice if some companies behave responsibly and often they will give good service to the function of profitability. ML
But to try and have it as an innate part of business and to have that as your leverage to have them behave better is futile and I
prefer to rely on decent regulations and policies.
LR Do you think market-based economies make society more miserable?
I don’t know because I’ve never lived in one that isn’t. But I would say, the innate problem with market-based economies is that
billions of pounds are spent on advertising and marketing and we have systematically failed to provide any training. If you want
a market to work, then you need decent behaviour on both sides of the equation. And we don’t have good consumer behaviour.
Unfortunately, with the academisation of the education system not all schools have to provide financial education. The ML
Government has not provided enough resources nor encouragement on this subject and it has been done incredibly poorly. I think
that’s irresponsible and short-sighted. A market economy works well when you have consumers and businesses who understand
the nature of it. It doesn’t when one side is blindsided, and unfortunately that is how we’ve set up our market economy.
LR What do you think the impact of student debt is?
I don’t believe it is debt, but we call it debt when they go to university and yet we have never educated them about it, which is
a huge problem. Because no one has educated about the difference between what is in fact a graduate contribution system
and getting a payday loan. I believe it is largely a disastrous social policy, partly due to misnaming it. Calling it a student loan
is incredibly damaging. We’ve framed it wrong, and that framing has been worse than the underlying mechanics which aren’t ML
particularly bad. The way it’s being portrayed politically, by both sides and the way it’s being misnamed and used as political
football has been abominable and I think politicians, whether they wear red or blue or yellow, for the last twenty years should
hang their heads in shame about it.
LR Would you say students going to universities are consumers? Do they get a good deal?
No, I think the whole thing is completely mucked up. I think the idea of making universities competitive hasn’t worked, full stop.
All universities charge the same fee. There is no value for money equation. All we’ve done is set up a graduate tax that closes
once you’ve paid it off. It should be called a graduate contribution system, it shouldn’t called a student loan. Whether it’s value ML
for money depends on the individual and what they put into it. I don’t like the consumerisation of universities. I think it risks
some dangerous consequences.
LR Do you think mental health problems are on the rise and why?
It’s very difficult to say. I think that we’ve certainly got an increasing awareness of mental health issues. The diminishing of stigma
means it is something that is talked about more, which is good. I think the fast pace and interconnectedness of modern life and the ML
increased stress that people tend to be under are a driver towards a potential increase in mental health conditions.
People with mental health problems are three times as likely to be in problem debt. I imagine in many cases it’s the other way
LR around - being in debt might lead to mental health problems?
I call it a marriage made in hell. Mental health problems can certainly lead to severe financial stress and financial
mismanagement. Debt problems could lead up to mental health breakdowns. The two feed off each other in an incredibly
devastating way. The research we’ve done shows that it isn’t just the lack of income: this is about the ability to manage. A
mental health condition is about impaired decision making. A perfect market is one where there’s perfect ML
information and perfect decisions being made on both sides. But when one in four in the community has a mental health issue
every year and are therefore potentially making poor decisions, you don’t have a perfect market.
Autumn 2017 | 17THE RISE OF THE STATE?
Should politicians nudge human behaviour?
The opportunities and risks that ‘nudging’ presents to policymakers are assessed by
Professor Robert Metcalfe
professor robert metcalfe that our team recently completed worse, one that backfires. We need
specialises in Markets, with Virgin Atlantic. We conducted more experiments by governmental,
Public Policy & Law an experiment to motivate airline public and private organisations
at Boston University captains to be more fuel efficient in order to not only understand
by randomising different nudges whether and how nudges change
Politicians and governments often that we suspected would change behaviour, but importantly how they
try to build a better society by captains’ in-flight behaviours. We can be used to improve welfare.
introducing rules, regulations and found that by simply informing the Let’s look at a different type of
yes, even taxes. Examples include captains about their exact behaviours nudge: that of fear-inducing pictures
speed limits, auto exhaust emission that were causing excess fuel waste, on cigarette packets (a scary image
standards, and sin taxes. Within the accompanied with a target for of a deceased smoker’s lung, for
last decade, policymakers have also reduction of those behaviours, we instance). The fear induced by the
become interested in using ‘nudges’ consistently reduced the amount of image is assumed to reduce cigarette
to change behaviour. A ‘nudge’ is a fuel wasted per flight. The cost of demand. Yet, information on the
relatively small change in the way the intervention was close to zero. health risks associated with smoking
that information or incentives are The benefit of the intervention have not changed, nor has the price
presented, ostensibly resulting in a was reduced fuel use and cost, of cigarettes. Smokers may not
notable change in citizen behaviours. a reduction in carbon dioxide want to be shown graphic images
What’s really appealing about emissions, and higher captain job of dead lungs, and therefore are
nudges is that they can sometimes satisfaction. This nudge passes the worse off from the images. Similarly,
change behaviour dramatically at very cost-benefit test, and demonstrates overweight people might not want
low cost. So, for example, many more one way that nudges can be a force to hear that they are obese. To refer
people save for retirement when they for both private and social good. to earlier examples, people using a
are defaulted into the programme lot of electricity at home might not
versus having to elect an actual What’s really appealing want to be told that they consume
retirement plan. To offer another about nudges is that they more than the average household,
illustration, we know that people can sometimes change or people might not want to be
reduce their home energy use by when behaviour dramatically defaulted in a retirement savings plan
they view their energy consumption at very low cost where there is presumed consent.
as compared to their neighbours. In many cases, these nudges are
While the calculated application Should policymakers be using successful in changing behaviour, but
of nudges is relatively new, they such nudges? In the case above, the they are not always easy free lunches
can be evaluated on the same nudges buy us a lot. Few would and they are not a substitute to the
terms as traditional policy tools. argue against their use to improve traditional ways for politicians to
For instance, we may appraise overall human welfare. But in other govern countries. Politicians should
a nudge by conducting cost- cases, the cost-benefit test is not so be aware of these two facts before
benefit tests. Do the benefits of clear. We have a lot more to learn trying to nudge a behaviour and
the nudge outweigh the costs? about what differentiates an effective attempt to understand whether they
Let’s take an example from work nudge from one that is impotent – or actually make people better off. •
18 | Centre WriteTHE RISE OF THE STATE?
Theresa May: free-marketeer?
Mark Littlewood argues that passionate advocacy for free markets is the route to electoral
success for the Conservative Party
mark littlewood is to put workers on boards and hours a week) to reading the entirety
the Director General further government intervention of the UK tax code, it would take
of the Institute of in pay bargaining, not to mention you two years to read the whole
Economic Affairs further retreat from sensible fiscal thing. During the same amount of
consolidation, made the manifesto one time, you could alternatively read
From the beginning of her of the most anti-market Conservative the five longest novels ever written
premiership, Theresa May has been policy offerings in decades. – or War and Peace twenty times.
compared to Margaret Thatcher, But worse than the actual policies
that last great female Prime Minister. was the rhetoric of the document. The UK tax code is one of the
Both came to power after a period Quotes like “We do not believe in longest and most confusing
of national turmoil – Thatcher untrammelled free markets” and in the world, clocking in at
following the Winter of Discontent promises that the government would ten million words in length
and May after the painful and “act in specific markets” litter the
divisive Brexit referendum. manifesto. While few – even at the No government in the past
IEA – would argue for “untrammelled 25 years has maintained much
The most recent Conservative free markets” without any regulatory of a hands-off approach to the
Party manifesto further check, the clear implication is that economy or society. In that time
entrenched the move Prime Minister May (or perhaps 34,000 new Acts of Parliament or
away from free markets Nick Timothy) believe that the statutory instruments have been
and classical liberalism current British economy is too free at introduced, while the regulating of
present, rather than too constrained. industries such as financial services
However, similarities can be This is extraordinary. Despite the has increased so rapidly that, on
deceptive. While Thatcher saw Cameron Government having a current trajectory, the number of
Friedrich Hayek as her ideological number of liberally good points, regulators will soon outnumber the
mentor (according to urban legend it would be difficult to complain it number of financiers. It is clear that
slamming down a copy of his was too taken with free markets. we live in no libertarian paradise.
Constitution of Liberty on the The Government now presides So, it is saddening as well as
Cabinet table to show what she over an economy that pays more concerning that when framing her
believed), Theresa May instead looked as a proportion of GDP in tax than vision of the future of Britain, Theresa
back to the work of interventionist under any previous Conservative May looked not to policies that
Joseph Chamberlain, even attacking Government since World War Two. would break down the entrenched
the ‘libertarian right’ in her first Meanwhile, the UK tax code is one elites and give individuals and
conference speech as party leader. of the longest and most confusing in local areas more control over their
Unfortunately, the most recent the world, clocking in at ten million own lives and money. That rather
Conservative Party manifesto further words in length with half this word than defend the successes that free
entrenched the move away from free count added during George Osborne’s market liberalism have brought
markets and classical liberalism. tenure as Chancellor. To give you a to both Britain and the world, the
Increased employment regulation, sense of what this means, if you were Conservatives effectively yielded
including plans to force companies to dedicate yourself full-time (40 the intellectual and moral debate to
Autumn 2017 | 19You can also read
