Concluding Response: Nick Clegg: How to Build a New Economy?

London, UK - 28th April 2010, 17:20 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to Nick Clegg, leader of the Liberal Democrats in the UK, for his concluding response to the five select questions asked by ATCA and The Philanthropia distinguished friends and colleagues. Please note that we have invited both the Conservatives and Labour to utilise the ATCA platform in an identical way to the Liberal Democrats. We are yet to hear from them. Nick Clegg writes:

Nick Clegg, Leader of the Liberal Democrats, UK

Dear DK and Friends

Thank you for your questions and observations. In the following answers I hope that I have addressed at least some of the issues that you raised with me.

Re: Excessive Bank Regulation

MH: "I welcome Nick Clegg's contribution and his reference to innovative financing mechanisms. As the Chief Executive of a small young bank that has won several awards for innovation in its short life to date, I would welcome clarification from the Lib Dems, and the other parties, as to how they will get the regulators in Basel, Brussels and London to understand that there is a different, social banking model that is open for business and can contribute to building a new, values based economy. There is a real risk that the weight of regulation designed quite properly to address the behaviour of some will stifle our model too." - Malcolm Hayday, Chief Executive, Charity Bank - Kent, UK

NC: I'm very much aware of the need to ensure regulation doesn't stifle mutuals and social banks. In terms of our plans, we'd place a requirement on the Financial Services Authority to recognise and maintain diversity in the financial sector. This would mean the FSA can't just apply rules and regulations to traditional banks in a way which would render other institutions unviable.

Re: Budget Deficit and Nuclear Deterrent

PT: "There does appear to be a considerable mis-match between the actual size of the budget deficit and the reality of reducing it in any realistic and meaningful manner. Mr Clegg claims to have found GBP 15 bn of savings -- these tend to be "soft" savings and are all too frequently undeliverable within the timeframes required. If the Liberal Democrats, in common with the other two parties maintain the fiction that spending on the public sector, NHS, schools, social cohesion policies, we must be honest that taxes are going to have to rise. Whether this is a broadening of a 50% tax rate or an increase in VAT to 20 or even 22.5 percent, matters not -- we need an honest approach from at least one of the party contenders. We are also faced with a reluctance of any of the parties to declare what their vision of the UK's place in the world -- are we going to be a "middle ranking power punching above its weight" or are we going to be an introspective EU member focused on the activity within Europe rather than globally? As a former submariner, who served on the Polaris boats, how is Mr Clegg going to deliver a cheaper nuclear deterrent after a number of options have been costed over the years and show that an assured nuclear deterrent can only be delivered by a submarine bourne missile system with preferably four hulls?" - Commodore Patrick Tyrrell, Chief Executive, Vale Atlantic Associates; Director, Armed Forces Communications & Electronics Association (AFCEA); Formerly with the Royal Navy - Cornwall, UK

NC: I understand that people are sceptical about promises to cut the deficit through 'efficiency savings' and other such things. That's why we've chosen not to rely on them at all for our deficit reduction plan. Of course, government wastes money, and we must do all we can to eliminate that waste. But the kind of fiscal contraction needed simply cannot be delivered in that way. Our savings are itemised, line by line, in our manifesto, and they are real, deliverable savings -- recognised as such by the Institute for Fiscal Studies. So for instance, we'll taper away tax credits more aggressively, saving about GBP 1.3bn a year. Our GBP 400 cap on public sector pay rises saves about GBP 3.5bn. I'm not saying that these, or the other measures we're proposing, are enough on their own -- of course not. Our plan is to hold a full spending review and, as they did in Canada in the 1990s when faced with a similar problem, consult people fully about all the possible cuts. That way we can make sure the process is not derailed by a public unhappy at having change foisted on them from behind closed doors. Finally, I think it's worth mentioning that -- alone of the major parties -- the Liberal Democrats are not pledging to ring-fence any departmental budgets. We know that if you're going to tackle the deficit, you need to look at the whole of government spending.

However, I'm not as enthusiastic as you about further tax rises. Labour has already brought in GBP 19bn of tax rises, and Liberal Democrats propose a further GBP 3bn a year tax on the profits of banks, to ensure they pay for the taxpayer guarantee they receive. That's a big tax increase on a weak economy already planned -- going further could be damaging. I genuinely don't think we should fall back on taxes to fill the hole when we haven't really scrutinised public spending yet. Putting up VAT, for example, would be a complete cop-out. I don't want us to become a high-tax economy by default because we didn't bother to try to reduce spending.

You also ask about Britain's role in the world. I believe our country has an important role but that we have the most influence when we work with our allies, especially in Europe. Our role in the EU, our relationship with the US, our seat on the Security Council and our global connections are all enormous assets. But we've been insufficiently clear about our own overall interests -- and, partially due to the very lack of openness which you describe, have been far too unwilling to distinguish them from those of Washington. I think it's also important not to draw a false distinction between playing our European role to the full and playing a role in the wider world. The EU, for all its faults -- and as someone who worked in the EU for years, I really do know it has faults -- is the most sophisticated response to globalisation we've yet seen, and I think it's vital to giving Britain an effective voice in the world.

On the point about Trident, I of course understand that this is controversial, but I wouldn't be speaking out if I hadn't been convinced by many senior military and defence experts that there really are other options to replacing Trident on a like-for-like basis. The world has changed since Trident was designed; we don't need to be able to obliterate Moscow and St Petersburg at the touch of a button. Field Marshal Lord Bramall and Generals Lord Ramsbotham and Sir Hugh Beach have deemed Trident "irrelevant" to UK defence policy. There are a number of alternatives we could and should consider that are better suited to modern threats.

For instance, a great many experts have questioned the Government's ruling out of any further life extension of the current fleet. The logic of Continuous At-Sea Deterrence is also, I think, one which we need to question in a post-Cold War world. And we could also look into fitting Astute submarines with nuclear-capable cruise missiles, though I'm aware that there are a number of risks which we'd have to look into. But I hope we can agree that the other parties' decision to hold a Strategic Defence Review, and then exclude the biggest-ticket item of all in defence, makes no sense. It's hardly strategic if it ignores the biggest strategic decision we have to take.

Re: The Cameron-Clegg Coalition?

BE: "I am a fan of Nick Clegg, though not of this particular message to ATCA, I must admit. If he seriously thinks ATCA members will be impressed by GBP 15 billion of savings against a budget deficit of GBP 180 billion, he is mistaken. And if he thinks "local enterprise funds and regional stock exchanges" are innovative financing techniques, he needs to read some financial history. I am also not sure what he means (if anything) by putting a greater value on equity rather than "tolerating" debt: if he proposes to alter the tax treatment of debt to shift the balance to equity, he should say so, but otherwise this statement is meaningless. All in all, a rather disappointing statement from Mr Clegg. But then this is an election campaign, I suppose, so one should not expect too much, even from an intelligent and well-informed person such as him. My hope, for what it is worth, is for a Cameron-Clegg coalition, as I think a government whose parties have been supported by 60-70% of the voters will be more stable and more able to repair the public finances than would a Tory government with a narrow majority, supported only by 35% of so of the voters. I consider David Cameron to be a liberal Conservative, and Nick Clegg to be a conservative Liberal, so they would match each other well, and the combination would help to neutralise extreme elements in both parties. It ought also to bring electoral reform, which is long overdue in Britain given the fragmentation of our party system and the decline in popular vote for the two main parties. The stability of sterling even as this prospect becomes likelier given the opinion polls suggests that markets too are relaxed about a Cameron-Clegg outcome." - Bill Emmott, Independent Writer and Consultant, Columnist for The Times, The Guardian, Corriere della Sera and various Japanese publications; Chairman, London Library; Chairman, Viewsflow; Formerly Editor-in-Chief, The Economist - London and Somerset, UK; presently in Milan, Italy

NC: I would be the first to admit that no party, including my own, has produced spending plans which will address the full structural deficit -- though I think it's worth pointing out that your figure of GBP 180bn includes the effect of the recession in the form of higher benefit payments and lower tax receipts, which we'd expect to adjust as the economy recovers.

The Treasury estimates that our structural deficit is GBP 67bn. Of that, GBP 19bn of tax rises have been announced by the government. In that context, our plans to identify GBP 15bn further in savings, over GBP 10bn of which will go towards reducing the deficit, mean that we're actually quite near to halving it. But what we're saying is that we will hold a Comprehensive Spending Review in the autumn -- and we'll consult up and down the country, asking public service professionals and people throughout Britain what they see as more and less important. The key thing is to take people with you -- what we mustn't do is impose more and more cuts without any real mandate. If you look at Canada in the 1990s, when the Liberal Government there had to close a huge deficit, this was the approach they took -- and it worked.

I'll just take you up briefly on the point about Regional Stock Exchanges. I know that RSEs closed in the 1970s and that there was a reason for that, but our plans for RSEs are very different from those of the past. With new technology, online platforms can be created at low cost -- so we can get the benefits of a regional stock exchange without the associated costs. There's a wider point, too: the demise of regional stock exchanges followed ever-increasing centralisation of political and economic power in London. That is precisely opposite to the way we now need to go.

And I think this ties in, partially, to the point about equity versus debt: we've also got plans for local enterprise funds, matching up investors with local businesses. There is a real equity gap, which has made more and more smaller businesses dependent solely on debt to grow. And with bank lending now contracting so dramatically, that has pushed them into difficulties. Surely the one thing we have learnt from the economic crisis is that you cannot build an economy solely on debt? An economy built on cheap consumer debt and a housing bubble is not sustainable. We need to rebalance our economy, investing in green industries and reducing our reliance on the City of London - in terms of both our economic geography and the balance of economic activity in Britain.

On the question of balanced parliaments, I've said it before and I'll say it again: I take my marching orders from the voters. This is their chance to have their say and to decide the government of the country -- no one else's.

Re: The Key Question is How to Scale?

JE: "I am reminded that when we founded SustainAbility way back in 1987, our tagline for many years was 'The Green Growth Company' -- inspired by the notion that the environmental and wider sustainability agendas will create some of the defining market opportunities of the twenty-first century. The latest report from the World Business Council for Sustainable Development, 'Vision 2050', talks about markets worth USD 3-10 trillion by 2050. But, while I am impressed at the early momentum established by Nick Clegg and his team, welcome his pledge of GBP 3.1 bn and will once again vote Lib Dem next month, I feel very strongly that Britain has a fundamental problem when it comes to sustainability-related enterprise. And it is a problem brought home to me once again when I co-led a study mission of 19 founders and CEOs of UK cleantech companies to California, particularly Silicon Valley, earlier in the year. Stripped to its essentials, our basic, recurrent problem is that we are not good at bringing new solutions -- cleantech or otherwise -- to scale. We invent things like railways, exporting them to countries like Switzerland and Argentina (or at least did so when the world was our market oyster), but end up with the Germans increasingly running ours! That's the new Europe - and I welcome many aspects of it, as I do the fact that Nick Clegg is able to speak a number of languages. But how do we as a nation learn to speak the language of scale? How do we recover our ambition to drive new industrial revolutions? I was meant to be in Korea last week, speaking at the Business for Environment (B4E) summit, but Vulcan willed otherwise. I was disappointed on various fronts, but particularly because I wanted to talk to some of those behind the country's Green Economy strategy -- which operates against a time horizon out to 2070. Korea sees itself as a future hub of the global Green Economy. Money isn't the main problem here, welcome though that GPB 3.1bn would be. Instead, as has often been argued, we need a more entrepreneurial, globally-oriented culture -- so, in my dreams, I imagine the Eden Project's Tim Smit as the UK's Minister for Green Enterprise -- within an evolving economic paradigm forcefully shaped by one of the greatest living Britons, James Lovelock. My question to Nick Clegg and his colleagues is this: How can we ensure that we develop and sustain a vibrant, internationally significant Green Economy that doesn't simply gift-wrap our inventions and innovations and hand them over to others (as happened recently with the sale of Cadbury to Kraft) who DO know how to scale?" - John Elkington, Founder & Non-Executive Director, SustainAbility; Founding Partner & Director, Volans Ventures - London, UK

NC: I know there's an important point here. After all, this is a country whose research community is one of the most prolific anywhere in the world: Britain has 1% of the world's population, but it's responsible for 8% of the world's publications, 12% of world citations and 14% of the most highly cited papers. And we're in a class of our own in stem cell research, synthetic biology, bioengineering, climate science, food production and many others.

But I think you're right that we're not doing enough in terms of sustainability-related enterprise, and I think that partly reflects a wider problem we have in terms of knowledge-intensive industries. Plastic electronics is a powerful example. Part of the problem is simple political will -- a government which, faced with a need for cuts, immediately mounts a GBP 600m raid on higher education is not a government which places the value on science which it should.

We need to do much more to exploit the potential that we have. The UK has more potential tidal power than anywhere else in western Europe and a Scottish company delivered the world's first commercial wave project -- but in Portugal, not Scotland. We're seeing some movement there, but nothing like enough -- and I think this is one of many cases where the economic and environmental arguments go hand in hand.

Re: Global Leadership in Sustainable Development

HG: "Building a new economy is, indeed, one of the great challenges for Britain. As the originator of the industrial revolution it vigorously set new parameters for economic development. It became a pioneer of economic globalisation. Using fossil fuels as an innovative yet non-renewable power source, Britain also became a pioneer of unsustainable development. Can it now become a global leader in sustainable development instead? It is most encouraging to hear Mr Clegg say that he wish to 'build a new economy, in which high-tech, low-carbon industries will be able to thrive'. The emphasis on regionalism is also very interesting. In every one of its local communities Britain is full of immense frustrated creative energy, and it is this enormous human capital that now needs to be given a chance to thrive. What needs to be spelled out in much more plausible detail is how the reality of economic, financial and social globalisation, which has emerged in the last few decades, can be matched with a new regional 'economic magnetism' in which Britain's regions can build resilient and sturdy economies which give people a sense of certainty and future confidence. Building a smart renewable energy infrastructure to, first and foremost, satisfy regional demand and to create hundreds of thousands of new local jobs is an obvious starting point. But will Mr Clegg and his party find the right language to make sure that such options are taken seriously by the electorate?" - Prof Herbert Girardet, Co-Founder and Director of Programmes, World Future Council; Recipient of UN Global 500 Award 'for outstanding environmental achievements'; Senior adviser to the Dongtan Eco-City project on Chongming Island, Shanghai - London and West Country, UK; and Hamburg, Germany

NC: I think some of the points about regionalism and green industries have come up in the other questions. So I'll focus briefly on the point about regionalism and globalisation. This is an area where liberalism, as a creed, is uniquely at home. Liberals have always understood that power needs to be dispersed -- that the nation state shouldn't hoard it and keep it all at the centre, or refuse to share it with neighbours. It's why we're so enthusiastic about breaking power down, about sharing it more fairly, about putting it back in people's own hands -- and it's also why we're instinctive internationalists, knowing that countries can do more for their own people when they work together.

The aim of our approach to the economy -- moving away from over-reliance on housing and consumer debt, helping businesses to emerge and thrive without relying solely on London, investing in green industries, playing our full part in the European Union -- ties into this basic understanding. So we want to refurbish ports so they can manufacture offshore wind turbines, breathing life into communities, creating green jobs and helping to kick-start renewable energy; and at the same time, we want to work towards a European super-grid, so a European energy market becomes a reality. We don't have to choose between a regional and a global approach. They really do go hand in hand.

Conclusion

It is refreshing to engage in such dialogue on issues that are so important to our country and the wider international community. From now until the 6th May my schedule will render further discussion difficult, so I would like to thank ATCA for the opportunity to engage in this dialogue and to thank you for participating.

Very best wishes

Nick Clegg

Leader of the Liberal Democrats

[ENDS]

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