The Shape of the State - My Speech for Onward UK

2019 is a massive year for British politics – and not just because it’s the year I joined Taylor Swift’s squad. As we leave the European Union, we have an opportunity to set out a new economic agenda. We’re leaving the era of post-crash consolidation and recovery, and entering a new one of growth and opportunity for Britain, in which we can reach out to a much wider world, with friends and rivals pushing us all to greater heights.

In terms of economic reform, this will be a year of change and renewal for Britain. Leaving the European Union with the prime minister’s Brexit deal gives us back control over our money, laws, and borders. We must take this opportunity to think about the future.

This year’s spending review, where we will set budgets from 2020 through to 2023, allows us to make a real and lasting impact. We will finally have the power to modernise the state, making it sleeker, more effective, and better value for the people it serves.

We now have a crucial opportunity to unleash economic growth, as well as the potential of everyone in the country, giving them the chance to take control of their own lives. It’s called popular free-market conservatism, and it is governed by three principles. First of all, we should focus on people’s priorities, not the blob of vested interests. Second, for a free market economy to succeed, everyone must have a shot. Third, the state should help people on the margins take control of their own lives, not tell capable citizens what to do.

I start from the principle that every pound in the exchequer is money that somebody has worked hard to earn. That means we have a responsibility to make sure that public money is spent on public priorities, not those of vested interests.

But there is a growing blob of lobbyists, corporations, quangos and professional bodies who ask again and again for government favours, arguing that they are the exception, that their cause deserves special treatment. But if we gave in to all their demands, what would we squeeze out? And should they be taking money from those on relatively low earnings, who could be spending it on a new car, a holiday, or a treat for their children?

I want to make sure that the spending review works for people right across our country, from Plymouth to Perth and Darlington to Dereham – people that go to work every day and don’t have the time, money, or inclination to hang around Whitehall. This is what the people’s spending review should be.

That’s why I’m travelling around the country asking the public what their priorities really are. So far, I’ve been to Felixstowe, Walsall, and Tadcaster. People have told me they want money focused on core public services – the police, education, roads, defence, and the NHS.

And we have already started on this. The prime minister increased spending on the health service, with a £33.9bn annual cash increase by 2023/24 – making it the government’s number one spending priority. We’re also making sure that the health service reduces waste so that more money is spent on the front line. That is the approach we’re going to take across the spending review – making sure we’re prioritising the core services that people want.

People are also very clear that they don’t want to see the government waste taxpayers’ money. Let’s not forget how angry people get when politicians get this wrong. Take Labour’s botched NHS IT system that cost the taxpayer over £10bn, or the EU blowing our money on things like dog fitness centres and donkey milk research projects. This waste portrayed bureaucrats’ contempt for the taxpayer and damaged the public’s faith in politicians. We must never go there again. It’s still underappreciated in politics how much people hate their money being frittered away.

The public has little truck with the nanny state or with vanity projects. They don’t want their hard-earned cash spent on announcements designed purely to get column inches, or on billboards that brag about the government’s generosity. They don’t want to hear that their money is used for corporate subsidies, or to prop up zombie industries, or to be told exactly how much to eat or how much to exercise. After 13 years of Labour government and government initiative-itis, we ended up with a horrendously complicated landscape.

State support for business spread over numerous government departments including tax credits, costing around £18bn. Across the board, there were hundreds of opaque organisations with ill-defined aims demanding public money for their latest pet project, all while erecting barriers and piles of bureaucracy and admin. We have managed to reduce the number of quangos from 561 in 2013, to 305 in 2017, but it is still the case that the administration budget of these bodies costs us £2.5bn, and that too many hard-working public servants and business people are spending their time filling in forms and applying for grants.

There are those prophets of doom who say the size of the state must inexorably grow. But, as we leave the EU, I’d point to some of those countries we are now competing with. Countries like South Korea and Japan show that it is perfectly possible to fund the services people care about while keeping taxes low. The way to do it is to grow the economy – just as we have for the past nine years so that we have more pie to share out. We must, at the same time, prioritise ruthlessly – keeping the people’s interests at heart.

We will carry out a zero-based capital review during the spending review. We will look at the major projects we are investing in, and asking whether they are really working for us – whether they are having positive effects on growth and the wealth and wellbeing of individuals. We must ensure that we are upgrading and maintaining our public realm, while also focusing on the less sexy projects – the nitty-gritty that has a high return on investment.

One example is local transport around our cities and counties – the journey into work each day that really affects everyone’s lives. It was one of the top priorities for the people I met. They want their local roads fixed, and not to have to sit in a traffic jam. They want a less crowded commute into work. They want the basics sorted.

British cities lag our continental neighbours in terms of local public transport connections. Leeds is the biggest city in Europe without a mass transit system (and don’t I know it from my time spent on the number 19 bus), and the two most congested commuter lines in the country are the train lines going into Manchester.

Birmingham, meanwhile, has a metro with just one line, whereas Lyon, a city half the size, has four. It means that people in the city have to rely on slow buses that get stuck in traffic. This effectively creates a barrier that stops people from commuting in from the suburbs. A study from CityMetric shows that Birmingham’s productivity is 33 per cent lower than a city of its size should be – in large part because of its poor cross-city transport.

That’s why we have funded Andy Street, the inspirational mayor of the West Midlands, to the tune of £400m to improve and extend the city’s metro. Projects for commuter line improvements and local roads generally have a much higher return on investment than long-distance routes. That’s why we created the £2.5bn transforming cities fund – because we know that these are the sorts of projects that make a real difference to productivity and to people’s lives.

Everyone must have a shot at success, and government needs a balanced approach. By focusing on the core services that matter to the public, we can boost growth – both personal and economic. We can do so while keeping taxes low, which means that people have more freedom to spend on their own priorities and more of a stake in their own future. We’re opening up opportunities for people across Britain thanks to our policies. More children from low-income backgrounds are now going to university, more young people are setting up businesses, we’ve got fewer workless households than ever before, and because we’ve cut stamp duty, over half of new homes are being bought by first-time buyers.

But we must go further if we are to grow our economy. To be a successful popular free-market economy, everyone has to have a shot at success. I came into politics because I want Britain to be a success story, and that means everyone in the country being a success story. Everyone, regardless of their background, has to believe that they can be a successful business person, a judge, or even a leading politician. I came from a comprehensive, went on to Oxford University, and became a cabinet minister. But I was very lucky in having great parents and good teachers – things in my early life that gave me the opportunity to go far. Not everyone has that, and success in life should not be a fluke of circumstance.

A fully functioning free market depends on the success of new entrants generating new ideas. As such, we have to crack down on any entrenched privileges that stop talented people coming through.

It’s still the case that eight schools get as many students into Oxbridge as three-quarters of all schools put together. It’s still the case that seven in ten senior judges are the product of private education – ten times the proportion in the general public. It’s still the case that 90 per cent of venture capital funding deals in the UK go to all-male teams. And it’s still the case that – because of our restrictive planning system – people are paying a greater proportion of their income in housing than ever before.

In 1947, people were paying less than an eighth of their total expenditure on housing – now it’s over a quarter. People who rent in London are spending half their income on accommodation. If we don’t deal with these entrenched barriers, it will undermine people’s faith in our economic model and lead them on the road to socialism.

These barriers cost us all dearly. They block people’s path to success, stopping them from getting the education, job, and home that their efforts deserve. The public pays the penalty twice over because they have to pay higher taxes to paper over the cracks. Next year we will spend £34bn on housing support, over £1bn in support for the fuel poor, and over £17bn on out-of-work benefits. All of that comes from taxpayers’ pockets, so it’s in all of our interests to eradicate these barriers.

Inside every one of us are aspirations and dreams, and the role of government shouldn’t be doing things on people’s behalf like an overbearing helicopter parent. Instead, it should be clearing the barriers to their success. So, how do we do this?

Those on the left of politics believe the answer is redistribution. We saw that with Gordon Brown, who introduced a new tax credits system when he was chancellor under Tony Blair. This cost over £1bn in its first year, but ended up costing £30bn a year, with nine out of 10 families qualifying for means-tested payments. While people got money, they did not get the support they needed to get a job. Consequently, there were 2.5 million people unemployed when Labour left power. 

Labour’s failure showed that the answer to poverty is not simply the transfer of money. The Labour party is now even thinking about universal basic income – a flat payment given to everyone with no strings attached. Finland carried out a trial in 2017 to see if UBI could solve its high unemployment rate. But, after giving a random sample of 2,000 people €560 a month to do what they liked, they found that they were no more likely to find work. Instead, the programme removed the incentive to work and earn. The OECD warned them that in order to expand the programme across the country, they would need to increase income tax by nearly 30 per cent. After all the fanfare, the promise of free money for all was revealed to be as expensive as it was ineffective.

In the UK, just as in Finland, the answer is to create a truly free market, in which everyone has a chance. A market where everyone has a chance to work, which is the best route out of poverty. And not just to work, but to succeed – to move in and move up, and that means identifying the barriers to success, and taking them away. 

People don’t need handouts or universal basic income, but the universal basic infrastructure of life: The foundations of living a full life in a modern free-enterprise country. These foundations give people the chance to get where they want to go. People need access to a good education, a good home with fast internet, and good transport links to get to a good job.

That’s why we have reformed the welfare system to get people off benefits and into work, and we’re also investing in capital at a 40-year high. As we improve rail, roads, and fibre right across the country, we’ll be guided by our industrial strategy, and use our zero-based review to make sure we are getting maximum value for the public.

We’re also transforming education with our academy and free schools programme. In housing, we’re reforming the planning system, just as countries like France, Germany, and Japan have. I’m delighted that James Brokenshire is soon launching his planning green paper – I look forward to seeing what’s in there. At the spending review, we’re going to look at every bit of spending and make sure it is delivering for everyone regardless of their background, to make sure that everyone has that universal basic infrastructure to be successful.

There are people who talk down success. They demonise profit. They believe any one person’s triumph must come with another’s failure. They are wrong, and they damage the prospects for those on lower incomes by taking the ladder away. Success is not a zero-sum game. If we get the conditions right, it’s there for everyone to grasp. If we give everyone the platform for success and the chance to run their own business or work in someone else’s, we will help people achieve their potential, solve social problems, and increase economic growth.

However, we also need to recognise that there are some people who will not yet be capable of using this platform, perhaps because they are struggling with health conditions or addiction, or because they have missed out on a basic education, or because they have been traumatised and left in despair after suffering the consequences of crime.

It should be government’s responsibility to prioritise support for these people, helping those on the margins move to a position where they can take control of their lives, and stopping any more people getting into that position in the first place. It’s a simple idea: that we should spend more on the areas which have the biggest impact, and less on those that don’t. It points towards the moral case for proper public spending control – that every pound wasted on a pet project could have been used to change someone’s life. This is why Labour’s nationalisation plan is so damaging: think of where the hundreds of billions of pounds it would cost could be spent – on giving more children in care the best start in life, or more support to help disabled people get into work.

Additional focus on preventing grooming and child sexual exploitation is also crucial so that more girls in places like Rotherham and Oxford don’t see their futures taken away from them. Targeting spending on those who genuinely cannot do without the state’s help is the way to spend money well. I saw how the No Wrong Door programme in North Yorkshire provides a loving, family-like environment for the children in their care. I spoke to a young man there who had got a job but came back regularly because he knew they were looking out for him. This programme has reduced crime and improved health, but most importantly it’s giving these children a lodestar in their life – the encouragement to succeed. We are rolling out up to 20 more programmes like this and we’ll be looking at this area in the spending review.

I also strongly believe that we should not tell capable adults what to do, and that we all need the freedom to make decisions, good or bad, and live our own lives. But we all have a duty of care to make sure that children growing up in Britain have the best start in life as well. In this country, we spend just over £3,000 per pupil in early years, just under £5,000 in primary, just over £6,000 in secondary, and we contribute approximately £6,500 to students’ university education. The academic evidence shows that when it comes to intervention, the earlier the better. Professor James Heckman argues that focusing investment between birth and the age of five “creates better education, health, social, and economic outcomes that reduce the need for costly social spending”. 

Of course, shifting funding towards earlier intervention is difficult. This requires us to be patient – too often we question why a policy hasn’t worked immediately. Take our phonics scheme, which has helped our nine-year-olds rocket us up the European literacy rankings and proved one of our biggest policy successes of recent times – championed by Nick Gibb. The benefits will be felt most in 10-20 years’ time when these children are entering the world of work and starting their own families. These children are not yet in secondary school, much less the jobs market, but in the future, we’ll have more independent adults able to succeed. And so, this is exactly the sort of long-term policy the government should be supporting.

That’s why we’re working with the Office of National Statistics on valuing human capital. This sounds like a dry concept, but what we’re really talking about is how to maximise everyone’s opportunities, how to give everyone the best chance of living a healthy, successful life. Using this as a lens for the spending review will help direct resources to improving people’s opportunities while keeping taxes low. We will constantly evaluate the consequences of our spending decisions on people’s lives – not just in the here and now, but long into the future.

By cutting out unnecessary activities that drive up costs for the government, we can cut taxes so that people can keep more of their own money, make sure everyone in Britain has the basis for success, and afford to help the most vulnerable. For the first time in many years, we have the power to make positive decisions. We’ve got choices. We’re throwing off the constraints of the post-financial crash world, as well as the constraints of the European Union. We’re now in a position to make Britain a success story into the future by growing the economy and realising the potential of everyone in our country.