Articles from Cass Knowledge

Coalition or collision?

Cass academics offer some joined-up thinking to the Westminster double act.

The Coalition Government in Britain ended 13 years of Labour rule. The Conservatives and Liberal Democrats inherited an unenviable collection of political and financial challenges and quickly ushered in an era of fiscal frugality of a severity not seen for decades. George Osborne, Chancellor of the Exchequer, announced budget cuts in June that will raise or save £40 billion through tax increases, welfare cuts and salary freezes. He also announced that the Financial Services Authority will be split into a prudential regulator, which will be a subsidiary of the Bank of England, and a new Consumer Protection and Markets Authority to focus on how financial firms act in the markets and treat their customers. While Osborne promised to protect the poorest, the budget measures will still pinch: a two-year freeze on public sector pay for those earning more than £21,000; a 2.5 per cent rise in VAT to 20 per cent; and a three-year freeze on child benefits. Higher-income earners will find their capital gains tax rising from 18 per cent to 28 per cent, and the threshold for higher-rate income tax will be frozen until 2013. Five Cass academics were invited to give the Government a few pointers, to prioritise the issues that need to be tackled, and to assess the outlook for the British economy.

Prof David Sims
Professor of Organisational Behaviour and Associate Dean of the Faculty of Management
Coalitions are inherently superior to majority governments. Our electoral system has been described as an elected dictator-ship. The leader of the winning party is put in a very strong position; most of the people who can remove him or her from office are looking for preferment, and the winner has little need to listen to anybody else. This has all too frequently led to our being governed by people who, sometimes from quite a thoughtful start, develop an ever-greater conviction of their own rightness on everything and who have no incentive to expose themselves to critical debate or the wisdom of others. In a coalition this is different. Decisions have to be argued through. Brash statements of conviction are no longer enough. You have continuously to persuade other people that your idea will work, to discuss the unintended consequences, to consider the alternatives. This does not have to lead to weak compromise. Bill Isaacs, the American writer and commentator on banking and financial issues, and others, have shown the importance of good dialogue for achieving really effective outcomes, and this means not just speaking together but thinking together. There is much more chance of this within a coalition than when discussion is confined within one hierarchy. Malcolm Gladwell, the best-selling author and writer for The New Yorker, cites the example of research on Korean Airlines, where the accident rate was radically reduced by developing a less hierarchical culture in the cockpit. If you have good dialogue going on, your aeroplane is less likely to crash because people are in a position to share their observations and doubts. We also know that good dialogue improves creativity, as is seen in any well-run brainstorming session. If you agree that a coalition makes good dialogue more likely, then we should all wish ours a long and happy life.

Prof Roger Steare
Visiting Professor of Organisational Ethics and a Fellow at the cross-party policy think-tank ResPublica
The Liberal-Conservative government will be good for the UK, provided it can keep its focus on the founding moral principles of freedom, fairness and responsibility. Freedom is crucial because there is little evidence that the Big State approach of the previous government actually works. On the contrary, history and organisational psychology tells us that the most successful political settlements are based on active consensus and participation at local level, where relationships and communities matter. The Roman historian Tacitus wrote in his Annals: "Laws were most numerous when the commonwealth was most corrupt." But with freedom comes responsibility. As moral philosophers we would describe this as the moral value of self-control. If we don't want a nanny state telling us what to do, then we must assume this responsibility for ourselves.Responsibility is also crucial if we are to face up to environmental and social challenges as well as the economic. With the economic challenges, fairness is also crucial to building an enduring political settlement. Fairness requires give and take and this will, of course, also apply to this coalition government.

Prof Geoffrey Wood
Professor of Economics
The coalition must deal with freedom and with finance. The previous administration attacked freedom. It introduced detention without trial, restricted trial by jury, made it possible for a person to be tried more than once for the same offence, planned to introduce identity cards linked to a detailed set of data on every citizen, and passed the Regulation of Investigatory Powers Act, which allowed councils to tap telephones and emails to deal with crimes as dangerous as allowing a dog out without a collar. A more honest name would be the Regulation of Citizens Act. All these actions of a government gripped by paranoid suspicion of its own citizens must be undone. The national finances were wrecked by the previous administration. The wreck was not caused by the banks - they created a surge in debt which could be paid off over time. Rather, the problem is the "structural deficit", by which I mean the previous government's borrowing in good times. Public spending grew much faster than the economy and this growth was financed, even in times of boom, by borrowing. Borrowing to pay for spending when times are unusually good, rather than repaying debt so as to be able to borrow without difficulty in bad times, is the action of a government either fooled by its own claims to economic omnipotence - an end to boom and bust - or of one determined to sow the fields with salt for its successors. Either way, the deficit should be cut and turned to a surplus. The coalition must do this, and should do it by cutting government spending, not by raising taxes. All the evidence is that only fiscal corrections produced by spending cuts last. If all that is done the coalition will indeed be good for the country.

Prof Philip Booth
Professor of Insurance and Risk Management
My own perspective is that we need to shift the boundaries decisively between the state and the private sector. Over the past 11 years, government spending and taxation have grown at very high rates and the burden of regulation has, arguably, grown faster: the Government now spends more than individuals and families for the first time in peacetime. I would therefore judge the coalition by its ability to make a decisive change in direction in Britain's economic policy. Some would suggest that a majority government would be more likely to achieve this. That is possible; but it is also possible that a coalition makes it more difficult to unite opposition against painful policy decisions. Furthermore, some of the Liberal Democrats in the coalition share my concern about the growth of the state and the crowding out of the private sector - including activity by the voluntary sector and civil society in addressing important social needs. So I do have some optimism, especially in education. Here it is likely that one of the developed world's most centrally controlled education systems will be somewhat liberalised with the support of both coalition parties. Welfare reform is a much tougher nut to crack. Here, difficult short-term consequences often arise from sensible long-term decisions - but there seems to be a will for change in this area, too. There is a long way to go, and there will be very difficult times ahead. The coalition might easily break. There are also some areas where there is no appetite for reform - health and employment regulation, for example. Not only that, but within a few weeks the Government lost David Laws, possibly its best economist and the Liberal Democrat most committed to a more radical free-market liberalism. Problems will come from unexpected sources - but so too might progress.

Dr Alistair Milne
Reader in Banking in the Faculty of Finance
The real question is whether this coalition can survive once people realise that the UK has been living an economic illusion for the past quarter-century. The next 10 years are going to be unbelievably painful. Public services are going to be cut back savagely and the bureaucracy will make sure that they (the management) are the least affected by these cuts. So expect fewer teachers, nurses, soldiers, policemen and lecturers and plenty of continued oversight from people managing their time. Employment opportunities of any kind, public or private sector, will be scarce, and at the same time removal of benefits from those not actively seeking work will increase the numbers chasing these few jobs. Expect a generation to be forced into illegal and black market activities. With a stagnant economy, the effort to balance the budget largely through spending cuts will fail. So expect higher taxes of all kinds - national insurance, VAT, capital gains, income tax and more besides. A minority, those hanging onto professional jobs in big corporations or public bodies, will be OK, enjoying falling prices for the things they buy. Some, mostly around retirement age, have managed to squirrel away large piles of cash, perhaps from the housing boom or generous employee pension schemes. But millions more will struggle with a combination of falling incomes, inadequate pensions and large burdens of debt, so expect widespread bankruptcy and sharp increases in poverty. Concern over crime and personal security will rocket. All this makes the politics very uncertain. The coalition may limp on or we may end with an early election. The Labour party could end up in power again, perhaps in some new coalition. But this won't change anything because politicians are essentially powerless; they are just a mirror of our inflated expectations.