Who do you think you could do business with?
David Cameron and David Davis answer readers’ questions in our exclusive online debate as the Conservative leadership contenders battle for the support of British business.
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Why should business support the Tory party?
David Cameron: Because we will champion lower and simpler taxes, reduced regulation, and more investment. We will put competitiveness at the heart of our economic policy, as well as economic stability. We have the ideas needed to improve Britain as a climate for business, and because we understand how markets work.
The Conservative Party needs to work to persuade businesses that we deserve their support. But I hope that by showing that we are a party that embraces competitiveness, wants to reform public services and continue to improve the supply side of the economy, understands the impact of damaging labour market regulations and the importance of a flexible labour market, and is willing to stand up to costly regulation from Brussels, we will earn that support.
David Davis: Business will only support us again when we are bold enough to make the case for change and to say that Britain simply can’t go on the way it is under Labour.
I’ve worked in business and I know we can’t go on as we are. We need a change of direction: less tax, spending no more than the country can afford and a real determination to take a scythe to the thicket of unnecessary and costly regulation.
With countries across the globe aggressively cutting tax rates, with massive competition from a range of countries from India and China to Eastern Europe, there is no alternative but to compete by reversing Gordon Brown’s suicidal high-tax, high-spend approach.
That is why I have put forward my “growth rule” which would allow me to cut taxes by £38bn.
Gordon Brown is widely perceived to be the most successful chancellor of the post-war era. What could you offer to differentiate your party from Labour with this in mind? And how would you set about rescuing the Tories’ economic reputation after the failed monetary experiment of the 1980s and the consequent mass unemployment? Not to mention the debacle of the ERM
David Cameron: Britain has been enjoying a period of economic growth for over 13 years. This started when the Conservatives left the ERM and introduced the inflation targeting in 1992, and has continued as the current government has built on those reforms by giving the Bank of England independence.
To restore the Conservative Party’s reputation for economic competence, we need to ensure that our economic strategy is credible and broadly based. We need far more to our economic strategy than just tax cuts. We need to engage in the economic debate more broadly: for example on skills and innovation, and on business investment, which is currently the lowest it has been since records began in the 1960s.
We differ from Brown because as well as locking in stability, we know that we need an economic policy that promotes economic growth in the long term. Many of Gordon Brown’s policies, of over-regulation, more means testing, complexity in the tax system, and lack of control in public spending harm the long run growth potential of the economy. We are just starting to see the impact of these policies – we have fallen from 4th to 13th in the international league of competitiveness, and our productivity has fallen to its lowest for a generation. So I would differentiate myself from Brown by trying to realise our economic potential as a nation, instead of taking it for granted.
David Davis: Needless to say, I don’t agree with many of the propositions in the question. Gordon Brown inherited a strong and healthy economy, with a sensible level of tax and regulation and an extremely healthy pensions system. We now have an economy where the tax burden is at a 25 year high, business taxes and regulations are costing companies millions more every year and our pensions system has been all but destroyed - not least because of Brown’s £5 billion a year pensions tax.
We can’t keep spending more than we earn, so I would introduce a new “growth rule” which would set the level of increase in public spending at 1 per cent lower than the growth rate of the economy. This would allow me to reduce taxes by up to £38 billion, which would in turn inspire growth to pay for the things we all want. I will also tackle Brown’s pensions crisis by bringing his £5 billion a year theft to an end.
What would Mr Davis and Mr Cameron like to see in the pre-Budget report?
David Cameron: First of all, I would like Gordon Brown to admit that his policies are hindering the growth of this country. His tax rises have hit economic growth this year. And as I have said above his supply side policies of over-regulation, complexity, meddling and interference are starting to damage the long term potential of the economy too.
Brown needs to get public spending under control. He is borrowing more than he planned, and most experts agree that taxes are going to have to go up to pay for it. By spending billions of pounds on unreformed public services, he has weakened the public finances without getting the improvements in education and health that we so desperately need.
And I would like to see Brown start to tackle the problems of our low skills base and poor transport infrastructure. Then can we rise to the challenges of globalisation and take advantage of the opportunities that the modern world brings.
David Davis: I would like to see the chancellor getting a grip on public spending and borrowing, giving some money back to people who worked so hard to earn it, and taking action to undo some of the damage his policies have done to Britain’s pension system.
Given the increased importance of intellectual works in our global economy, how will you address upcoming issues such as EU copyright revision and the relationship between innovation and property protection highlighted by peer-to-peer filesharing, podcasting and other new technologies?
David Cameron: In a knowledge-based economy intellectual property is hugely important. That means we must address questions of copyright and patents very carefully indeed. New technologies do not change the question fundamentally, but bring a new urgency to the same issues.
Patents and copyright are important to encourage innovation and new talent, whatever the industry – whether it’s music or IT. So we must balance the need to encourage and reward innovators with the need to allow new developments to be spread. But whatever the balance we must ensure that the law is practical and implemented properly, otherwise we end up with complexity and confusion that are unhelpful to everyone.
David Davis:The Conservative party has a clear commitment to encouraging enterprise and innovation and to helping businesses thrive. It’s important to work with experts in these areas to create the right conditions for this to happen. The recent launch of the European Software Association is one example of how politicians can work with the industry to create a platform on which issues such as intellectual property protection can be discussed.
Do Messrs Cameron and Davis think getting business back on track for the nuclear industry is the best option to reduce greenhouse gas emissions?
David Cameron: Climate change is one of the three greatest challenges facing mankind at present. Britain must play a part in fostering a new international accord – and we can do this only if we are ourselves achieving systematic carbon reduction.
I believe that, by harnessing the power of markets and technology, we can make carbon reduction wholly compatible with energy security and economic growth. But this has to mean a coherent approach to energy, transport, housing, planning and agriculture. It also has to mean a consistent policy framework pursued in the long term interests of the country over several decades. That is why I believe we have to have a cross-party consensus on a new statutory framework with specific year-by-year requirements for carbon reduction and independent monitoring.
David Davis:With the requirement to move away from coal and gas towards renewable and non-polluting sources of energy, it’s certainly an option we should seriously consider. But even if we started building today, we would not have a single extra nuclear power station for seven years.
Would you commit to tax cuts?
David Cameron: We should share the proceeds of economic growth between tax reduction and investment in public services. So we will make tax cuts when they are affordable. After all, tax cuts aren’t just something nice to have. A strong economy needs competitive tax rates to compete in the modern world. And we need good public infrastructure in areas like education and transport too.
David Davis: Yes absolutely, as part of a holistic economic programme. Firstly, it’s right that people should keep more of the money they earn. Secondly, lower taxes encourage growth which provides the money on which we all depend.
At the moment, the overall tax burden in the UK is at its highest level for 25 years. The average family is now paying £5,000 a year more in Labour’s stealth taxes than in 1997 – a punitive back-door increase equivalent to 16.5 per cent extra on the basic rate of income tax.
And while countries across the world are aggressively cutting taxes, Britain is still putting them up. I have said that I will introduce a new “growth rule” – a sensible proposition that says public spending should increase by one per cent less than the trend rate of growth of the economy.
That would still allow for higher spending on schools and hospitals. But it would also return money to the taxpayer. By the end of the first term of a Conservative government under my leadership, taxes would be cut by £38 billion.
Where do the candidates stand on raising the pension age to 67?
David Cameron: Because of longer life expectancy, Lord Turner has made clear that we need to either work longer, save more or pay more tax for more spending on state pensions. It appears he is likely to propose a mixture of all three. We will want to consider his proposals very carefully, instead of trying to rubbish them even before they are published, as the government is doing.
That means that we should not rule out considering raising the pension age to 67, over time, because we are much healthier later in life than our parents and grandparents were in the 1940s when that age was set. It would be a difficult decision to make, but may be an important part of making proposals to improve our incomes in retirement.
David Davis: I think we should wait to read the report the Government commissioned, rather than pre-empting and even rejecting some of its reported proposals out of hand. I’m quite clear that at whatever age it is set the most important thing is that the retirement age should be fair and equal for everyone. Tackling the pensions crisis is one of the biggest challenges a modern government faces. The most important principle is that we find a solution that’s fair to all. There are no quick fixes though so we should wait to read the report.
Do the Conservatives think that giving well-off people tax advantages to invest in second homes (through self-invested personal pensions) makes sense given the widespread view that the government should be helping first time buyers instead?
David Cameron: We need a housing policy that helps affordability, as well as improving the stability of the housing market. We know how damaging fluctuations in the housing market can be. The Conservatives raised questions about this when it was introduced in parliament but we will need to see what the detailed rules say before making a judgment on the current proposals.
The government are also proposing a new tax on housing development, which would only make affordability problems still worse. Instead we should be promoting the use of shared equity to help the thousands of families who want to get that first step a step the housing ladder.
David Davis: This doesn’t necessarily have to be an either/or question. Certainly, it must be a priority for any government to find ways to help first-time buyers onto the housing ladder. Home ownership is, after all, a long-standing Conservative principle, which is why I was instrumental during the last parliament in drawing up policies like shared-equity schemes which would have helped young people to buy a home. There are a range of things we can do to help first-time buyers, but one of the most important is to ensure the economy remains strong and stable. If we do that, we can ensure home ownership becomes the reality for more people.
I also think we need to think more carefully about housing in general. I believe we should be looking to provide more of it in our cities and urban centres, rather than simply building thousands of new homes on the greenbelt as John Prescott proposes. We need to inspire an urban revival, rather than encouraging young people to flee from our cities, so we must find ways of providing more affordable housing on brownfield sites.
How do you intend to resolve the growing public sector pension liability, given the significant strength and influence of the public sector unions?
David Cameron: The government has made a mistake in failing to tackle the issue of public sector pensions. Not only has it failed to deal with that problem, but it has undermined its credibility when talking about pensions more widely. Fortunately the Conservative Party is not in the pay of the public sector unions, so we would be able to approach the issue with the interest of the whole economy and the whole country at heart, instead of the Labour Party’s narrow self-interest.
Rising longevity is clearly good news, even though it does have some difficult implications. But I don’t see how it can be fair to ask some workers to retire at least half a decade later than others who may be doing exactly the same job. Those who work in the public sector include some of the most important people in the country – our teachers, doctors, and policemen. We need to ensure that we resolve this issue fairly.
David Davis: This is a massive problem made worse by 8 years of Labour pensions policy and the Turner Report, published later this week, will hopefully offer some solutions. There are no quick-fixes, but the principles behind pensions reform must be that it is fair and equitable. It’s wrong that the Chancellor expects the private sector to operate on one level while the public sector continues to work under different rules.
I also think it’s unhealthy for the public sector to be growing at a rate that is so much faster than the private. That too needs to be addressed. We need a Conservative Government to take the difficult decisions that are necessary to deal with this problem, rather than a Labour Government which says the case for raising the public sector retirement age to 65 is “irrefutable” one day, then changes its mind and does a deal with the unions just two days later.
How do you see the relationship between British businesses and their counterparts in the rest of Europe developing as the EU’s influence grows?
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David Cameron: I hope to see a constructive, competitive and interdependent relationship between businesses in Britain and the rest of Europe. That would not be new – businesses throughout Europe have been competing in the same markets for many years. If we are able to build the open Europe that we must, then increasingly I would hope to see British businesses making the most of opportunities in European markets. The EU’s influence should be to establish a competitive framework so that businesses all over Europe can grow and create the jobs and prosperity that we all want.
David Davis: British businesses have a vital role to play in advancing the case for greater free trade in Europe. While there may be growing recognition of the value of free trade around the world, the European elite clings onto protectionism. This has to change and Britain, for its own sake, must change it.
The urgency is rooted in economics. Over the past twenty years, China has been growing at an annual rate of 9.5 per cent and India of 6 per cent. The world has never seen the simultaneous economic take-off of two nations that together account for a third of the world’s population. Today the West’s manufacturing, tomorrow the West’s services, will bear the brunt of their ferocious challenge. And unless there are radical reforms by governments to deregulate, and by companies to innovate, Europe will fail.
So British business has a role to play - alongside the British government - in arguing for a free-trade, low regulation Europe - yet under this government Britain is one of only three European countries where the tax burden will increase both this year and next. We need a partnership between business and government to shape a Europe that is in the interests of British business and the British people.
The biggest problem in British politics is Europe. Is it possible to get a straight answer from either candidate on whether Britain will ever adopt a more constructive partnership with our trading neighbours without threats of renegotiation. And if it became obvious that the pound was dead-weight for the health of the British economy would you have the honesty to admit that the euro was a more secure proposition for British industry? That is assuming that British industry is something worth saving rather than picking up the pieces.
David Cameron: We have much to gain from engaging in a European Union which has at its heart free trade and co-operation. But I believe that Britain’s interest rates should always be decided in the best interests of our economy – and that means making sure that they’re set by the Bank of England and that Britain stays out of the euro.
The alternative is a one-size-fits-all monetary policy that has to be set according to the needs of many different countries – that may be experiencing different conditions to our own. By having our own currency we can maintain the stability and low inflation that are crucial for the success of British industry – both high-skilled manufacturing industry, where we can compete with the best in the world, and the service industries where we are often world leaders.
David Davis: Britain must be in control of its own economy, and in any case the euro has not proved the success it was promised, so I see no reason at all to join it.
I have set out a very constructive position on the question of Europe. With the failure of the constitution, the time is ripe for a new model for Europe - a model which would allow Britain to promote its own national interests. My vision of Europe is a pragmatic one which consists of free cooperation between independent European nations, collaborating where that makes sense, imposing their own priorities where universal agreement is impossible - within the framework of a lightly regulated Single Market to which all must subscribe.
The homogenised, one size fits all ethos of the EU with its absurd directives, unwarranted interference and bloated bureaucracy have time and again proved incompatible with our national interests. It is therefore vital to create a structure in which it is possible for member states to choose to take back powers to their own countries.
Economic performance in Wales is the worst of any region in the UK despite the level of government assistance over the years - the welsh assembly government in my opinion is an expensive talking shop - what are both your views?
David Cameron: The Welsh economy is not only important in itself but also a crucial part of the UK economy as a whole. That’s why we need a broad economic policy that supports the Welsh economy as much as the rest of Britain.
Ireland has shown how a small, open economy can develop dramatically by attracting companies and allowing them to expand. Average income in Ireland is now higher than in the UK. We must learn from their example. Government assistance must help rather than hinder the wider economy, and promote investment and competitiveness, like the tax measures within Enterprise Zones do. That way new businesses and international employers can replace the old industries that used to power the Welsh economy and bring jobs and prosperity too.
David Davis: It does seem that what applies to England applies twice-over in Wales. The Labour leadership in the Welsh Assembly Government is even less reconstructed than Labour in Westminster. We see that in the economy and in the public services too. There is no better place to look to see how increased spending doesn’t necessarily produce the results we want.
That’s why we need a Tory revival in Wales to make the case for a low tax, low regulation economy and for a new approach to running the public services. Nick Bourne and his colleagues are already making that case effectively. I want to work with them to implement the kind of policies I’ve been talking about in my campaign - policies that will enable people to keep more of the money they earn, that will free business to create the wealth on which we all depend, and that will give everyone the kind of choice in public services that are currently only open to the privileged few.