Nicholas Macpherson on economic policymaking in a UK outside the EU

Baron Macpherson of Earl's Court served as Permanent Secretary to the UK Treasury from 2005 to 2016, serving under three Chancellors and managing the department through the financial crisis which began in 2007. He joined the House of Lords in October 2016.

The event was sponsored by Baillie Gifford and took place on 13 November 2017.

Denmark and Maastricht, with Poul Skytte Christoffersen

24th October 2017

The Maastricht treaty on European Union had to be ratified by all 12 signatory countries or it would not take effect. Every country had its own rules for how treaties are ratified, and in three - Denmark, France and Ireland - a referendum was held. In June 1992, the Danes narrowly voted no - by 50.7 per cent to 49.3 per cent. In effect, 25,000 Danish voters decided the fate of the treaty, and sparked a political crisis in Europe. Poul Skytte Christoffersen, former Danish Permanent Representative to the European Union, spoke about what happened next, and what we might still learn from it.

Poul Skytte Christoffersen is Chair of the Board of Advisers at the European Policy Centre, Brussels, Former Ambassador of Denmark to Belgium and former Permanent Representative of Denmark to the European Union.

Brexit: the view from Brussels, with Fabian Zuleeg

Fabian Zuleeg is Chief Executive of the European Policy Centre in Brussels. On 28th September 2017 he spoke at a David Hume Institute event at the Royal Society of Edinburgh.

Chaired by Sir Andrew Cubie CBE

Craig Parsons “Trump, Brexit, and the Politics of Anti-Single-Market.”

Professor Craig Parsons of the University of Oregon on the single markets in the EU and US and how they are shaping our politics. At the David Hume Institute, Edinburgh, 22 March 2017

Willie Rennie: second independence referendum not the way to keep Scotland in the EU.

Willie Rennie, Scottish Liberal Democrat leader at the David Hume Institute for the Politicians and Professionals Series 2017.

Podcast extract of Willie Rennie’s speech:

The Politicians & Professionals have been an amazing series of presentations that bring onto your stage, one by one, the leaders of Scotland’s political parties.

It does, perhaps, tell us something about the times we live in that the series was originally conceived as being a very important single occasion in view of the turbulent constitutional time that existed in 2014: yet it has been held every year since.

And it doesn’t look as if turbulence will drop off.  So put it in your diary – same place, same time, next year.

And that is in the nature of things. You won’t ever hear an economist or an academic suggest, “that’s it. We know enough. We can stop thinking.”

I have had a look back across my remarks from the previous years.

Last year I set out the case for a diverse economy that nurtures and enables the talents of everyone. I argued for more investment in education and mental health to make the most of the people who live in Scotland. I would argue that the economic and education indicators since then make those directions of travel more important this year than even last. I will say more on that later.

In 2015 I set out the case for using the economic stability and employment growth that had come from the UK Coalition Government to build a fairer future where opportunity is available for everyone no matter their background. I have more to add on that later as well and show how important that is for the economy.

It was with some horror that I looked back to 2014. My presentation was entitled “In Britain. In Europe. In work.”  I argued that “each relationship has been placed fundamentally at stake”.

The horror is that it’s really happened.

Tonight I will combine the themes of previous years.  I will argue that the economy needs a liberal, internationalist, open and enlightened approach that recognises the value of partnership with our neighbours, and the need for investment to nurture the talents of our people, so that everyone participates in the success of that economy.

I will argue that, because of the change in their international posture, the economic philosophy and credibility of my political opponents has been shattered.

However, I will also argue there is hope.  Hope that the cause of a liberal, internationalist, open and enlightened approach can win again as we seek to challenge those who wish to establish a new orthodoxy.

The EU

The Conservative Party gambled.

Its confidence was high after claiming victory in the AV referendum, the independence referendum and the 2015 general election.

Yet the EU referendum gamble – hastily proposed, recklessly run and arrogantly assumed – was a roll of the dice too far.

The defeat was David Cameron’s downfall but the impact on the country has been far greater and more important.

The Conservative Party is now gambling again – risking the fragile economy, built back after the recession, now plunging into a pit of economic risk.

Britain is a great country.  It has achieved so much in the world but it has done so by building global organisations together with others.  Churchill laid the foundations for the EU after the war. Britain was a leading country in the formation of the League of Nations, now the United Nations.  We are a major contributor to NATO.  And more recently we have led the world on international aid – building the structures and the credibility of that effort.

I know that from my visits as a member of the House of Commons Defence Select Committee to countries across the world that our nation matters.  We can be a force for good.  We have a role in the world that is positive.

It has been an internationalist posture that has assisted in the generation of a positive view of our country globally.  That internationalist posture means we are, and are seen as, a powerful trading nation with a compassionate heart.

But now the isolationist fringe of the Conservative Party has taken over our government.

With attempts to cut the aid budget.

With a charm offensive on Donald Trump, who is no fan of NATO or the United Nations.

And the decision to leave our partners in Europe.

This is probably the biggest change of our international posture in a generation: from partnership through global organisations into a futile attempt to build our own power base in the world.  For want of a name you could call it the British empire.

But it is the Labour response that depresses me more.

Of course we must respect the referendum result.  But political leaders have got a responsibility to lead.  And leadership is what this country is missing at one of the most significant periods in modern political times.

Labour through the referendum and since has shown an astonishing level of indifference to the fate of our country.  No challenge, no questions, just compliance.

They have turned the fine tradition of Her Majesty’s Loyal Opposition to Her Majesty’s Compliant Opposition.

It would only be right for the British people to have the final say on whatever deal is agreed by the Conservative Government with the EU.

A Brexit deal referendum would be the right and democratic thing to do.

When they look back at this time our grandchildren will be perplexed that we did not take our time and ask ourselves the question if we really wanted this.

If the Brexit deal is damaging to jobs, the economy, our environment and the country’s security why would we not ask the British people a new question?

Liberal Democrats will provide the focus for that democratic mandate.

The public have only witnessed the Brexit shadow-boxing so far. When we see the real consequences of Brexit the punches will be felt.

Carolyn Fairbairn, the head of the CBI, was left reeling from the Prime Minister’s hard Brexit speech. She worried about how it was possible to trigger a big-ticket house-building programme at the same time as shrinking the UK labour market by 9 per cent if you cut out EU-27 nationals.

In 2014 I said our relationship with the EU was “at risk”. I said how “we are part of a European market with 500 million customers” worth trillions. I warned that the border effect between the United States and Canada had reduced trade by 44 per cent.

Now a whole series of reports has put the price of leaving at more than £5bn of GDP by 2030 and the cost of leaving the single market as high as £200bn over 15 years.

That’s a high price that surely is worth a simple question for the British people.

I look back 14 years and see the opinion polls on the invasion of Iraq. In April 2003 people wholeheartedly supported Tony Blair’s government. People would howl in the street at Charles Kennedy. But opinions changed.

Political leadership is sometimes about persuading people, not just repeating what the last focus group told you. That is followership.

That is why I will continue to argue for a public vote on the outcome and to lobby the EU to make sure they are open and ready for a public change of heart.

And if people say, “The Brexit Bill doesn’t contain provision for a public vote”, that doesn’t mean it won’t happen.

If you think about the fuel duty protests in the year 2000. There was a UK Government with a majority of 179 in the House of Commons. It didn’t have to have an election for two years. But it still changed its policy in response to an evident change of public mood.

So when the jobs are lost, the mortgages rise, the prices in our shops increase, the foreign investment declines.  When that happens I suspect the mood, the view, the opinion of the merit of Brexit may go into reverse.

SNP could leave us outside the EU

Whilst The Conservatives have abandoned the internationalist posture this country has built, and the Labour party timidly accept that approach, the SNP wish to compound the break-up of Europe with the break-up of the UK.

The response to the horror etched on the faces of people on the 23rd June should not impose greater sorrow in the hearts of Scots who value the relationship with our friends in Cornwall, Newcastle, Southampton, Swansea and Ballymena.

They didn’t all vote to leave.  In the rest of the UK ten times as many people voted to remain as in Scotland. Why do Nationalists seek to diminish the 15 million remain voters in the rest of the UK?  Surely they are worth standing with as we seek to persuade the rest.

Independence is not the economic or the emotional answer to Brexit.

That is why I will stand for Scotland in the UK as much as the UK in the EU.  I will not compromise on deep rooted principles of internationalism, openness and liberalism.

But it is noteworthy that Scottish National Party’s commitment to the EU has been compromised.

Recently I asked Mike Russell whether it was true that the SNP would fail to propose that an independent Scotland would be a full member of the European Union. He refused to answer.

When Alex Salmond was asked the same he issued a non-denial denial. It is unusual for Alex Salmond to be so careful with his reaction.

We, perhaps, should not be surprised as one third of their supporters favoured Brexit.

I meet them every week on the doorsteps.  Brexit supporters who backed independence in 2014 but are opposed now because of the independence in Europe policy.

Desperate to keep them on board for an independence referendum the SNP are prepared to sell out Europe to get their dream of independence.

But in doing so they are compromising with an isolationist agenda – just like the Labour Party.

The SNP would sell their granny on Amazon if it would win a few more votes for independence.

Some liberal-minded people have thought about whether, perhaps, Scottish independence is the best way to stay in the EU. They are prepared to put aside the innate rejection of nationalism that is inherent in the liberal approach.

But they are going to be disappointed.

You haven’t heard any senior nationalist say “the only way to keep Scotland in the EU is to have independence”.

They used to say that all the time. Now they don’t.

They now say that their dissatisfaction with the UK Government “transcends the issue of Europe”.

So the risk of their proposal is that it leaves Scotland outside the UK and outside the EU.

What a disaster that would be.

So that makes a full set. This isolationist bent, this international posture, now being adopted by the three parties to various degrees will damage our economy.

Putting up barriers – whether regulatory or tariff, through independence or Brexit – will be bad for business.

It will signal the start to a race to the bottom on tax, a race to the bottom on wages, and a low skill economy.

It will force us to be more dependent on President Trump or on Chinese investment. It will mean we are a pawn rather than a world leader and it will be bad for business.

And it will happen if we leave the single market of 500 million customers with the common, decent standards for employment that are part-and-parcel of the whole way it works.

Because, for all the complaints from Nationalists about Philip Hammond’s suggestion of a race-to-the-bottom on tax post-Brexit, they would have no choice but to follow suit.

I looked back to 2014 and this is exactly what I was warning about right here at this lectern.

There was a placard on display in a recent demonstration in Washington DC.  You may have seen it. It read, “I can’t believe I still have to protest this stuff”.  That is the sanitised version of the poster.

It’s how I feel sometimes.

In 2014 the SNP said they would undercut George Osborne on corporation tax, however low he went, to try to boost growth.

Now, post-Brexit, Philip Hammond says he will cut corporation tax to boost growth.

And it is clear that an independent Scotland would have to follow suit or else.

Three years ago the Conservatives said the Nationalists were nuts on a race to the bottom.

Now Nationalists say the Conservatives are cruel on their race to the bottom.

And I stand here and say, for yet another year, that a race to the bottom is wrong.

And, as I said back then, a strong economy needs “businesses that grow by being the best at what they do, making sure everyone knows it and everyone buys it in Britain, in Europe and across the World. Strength in the long run is by being the best, not by being – temporarily – the cheapest place on one tax”.

I will end my remarks in a moment by describing more widely a positive economic future for our country.

But I want to add one more thing to the observations I have about isolationism.

People sometimes cheer the idea of not being shackled to the EU or UK and able to make our own way in the world with all the other countries with whom we can strike up relationships.

And you then have to go and literally hold hands with Donald Trump to try to get a deal.

And that means we will have to take his bleached chickens or his hormoned beef or whatever, because he won’t sign a deal that’s not best for America.

Or you have to grab at any passing Chinese player like Sinofortone who have led a merry dance for people, first in Port Talbot and Anglesey, then Scotland, then Kent, then Liverpool.

The risks of trying to build a business in China are felt keenly by those businesses who have struggled to protect their intellectual property rights in China.

Positive about the Scottish economy

So, after three years, and into my fourth David Hume Institute winter series, I am still saying “In Britain, In Europe, In work”.

The experience my party had in the UK Government was important:

Tackling the deficit; bring it down so our international standing on money was sound.

Stabilising the economy – to an extent that it is hard to remember the anxious calls from British business made over the first weekend in May 2010 when the country looked like it might have political gridlock;

GDP growth back on track; leading the G8 group of countries.

Employment up to record-breaking levels, up 1.7 million jobs;

Doubled production of renewable energy, in the face of Conservative cabinet ministers who were real-life climate change deniers. Some £37billion invested, supporting 460,000 jobs, reducing our carbon emissions and improving Britain’s energy security.

Making work pay by cutting tax for those on low and middle incomes through the rise in the tax threshold.

That was the real, positive progress towards a strong economy with the Liberal Democrats.

Scottish productivity – participation

I want to describe to you a better vision for the long term future of Scotland.

I want to focus on productivity.

There was an SCDI report in 2015 – From Fragile To Agile – about the Scottish economy. It identified three elements: productivity, internationalisation and innovation.

I will take the first in some detail and speak about two elements within productivity.

The first is education and skills.

That won’t surprise you. I argued here last year that investment in Scottish education had to be the top priority for the Scottish Government. Everything that has happened since has made me even more convinced.

Brexit casts doubt on our economic future. The international education rankings published in December showed Scotland slipping to just average again. Action is urgent.

The report last week from the Sutton Trust shows a gap equivalent to more than two years in schooling for science, reading and maths between pupils from less well-off backgrounds in the top 10% of achievers nationally, compared to their equally clever but better-off peers.

That’s a lot of wasted talent. That is a loss of participation and productivity and innovation that is being missed.

It’s why I have been badgering the Scottish Government for three years to put a Pupil Premium into every school in Scotland. It would give the extra help – the one-to-one tuition and extra equipment -that children from less well-off backgrounds need to succeed.

I have partly won that argument.

The Scottish Government has now changed its policy and has a Pupil Equity Fund similar to the Pupil Premium.

I am only partly satisfied. The amount is much lower than the Pupil Premium in England which had proven success.

And the SNP has spent the last three years complaining about the Pupil Premium, and so I will need to work hard to make sure they bring it in to maximum advantage in Scotland.

On our costed list of budget proposals, we also sought an investment in college education for part time courses that would benefit thousands, including women and mature students.  It would be a return to the lifelong learning philosophy of the late 1990s that helped grow our economy by creating a well-trained, better educated and agile workforce at all ages.

It would repair the damage to that tranche of the education sector inflicted in the last few years with the reduction of over 150,000 college places.  It would assist employers to get the skilled workforce they need. And it would give hope to people over the age of 24 that they had a contribution to make to the success of our society.

We need educational ambition. Every child should be able to see how far and how high they can go.

Scotland needs the skills and talents of everyone to be a long term, productive and successful place.

It is about investing in people.

That’s why I have also put a priority on investment in mental health: we can’t afford for anyone to be left out.

Through my detailed Budget talks with the Finance Secretary Derek Mackay it became clear that the SNP are much further behind than we feared on mental health.

The Scottish Government’s last mental health strategy expired in 2015 and they don’t have a replacement. They haven’t started to recruit the big numbers of extra staff needed for the transformation of the service.

This all has an economic impact as well as the impact on individuals and their families.

More than 643,000 working days will be lost to Scottish businesses through depression alone this year. That’s a cost of £54million just for that aspect of mental ill health.

Conclusion

So that is my story on the economy.

I have set out a unique position of being pro-UK, pro-EU, and investing in people, and how that is good for business.

I have shown how the SNP threaten the UK single market and are now going cold on Europe.

They have taken Scottish education from the best to just average and failed to invest in mental health services.

The Conservatives want a hard Brexit and a race to the bottom on tax, low skill and low wages, unable to afford quality training and abandoning support for mental health.

Labour simply do not know what they are doing and have little interest in the economy while they circle amongst themselves.

I have argued that it is my intention to be part of a liberal fightback that turns back from the isolationist or nationalist positions being taken up across the world.

It is an international, optimistic, open and tolerant approach that is attracting growing support.

Britain’s Decision

Professor Laura Cram spoke about David Cameron’s renegotiation of Britain’s terms of membership of the EU – what has been agreed and what difference will it make?

Two important aspects of the negotiation were then be discussed by Professor Christina Boswell on migration, and Dr Daniel Clegg on welfare.