Lord Mandelson's perspective

Yesterday, Peter Mandelson addressed the National Association of Pension Funds' annual conference.  He gave his take on the current political scene, for the most part avoiding taking a partisan approach, though making his own views pretty clear along the way.  The following is taken from my manuscript notes and I hope I have given a fair sense of what he said, though doubtless there are some transcription errors.

He opened by giving a brief survey of the three party leaders' speeches.  He was nice about all three.  He described Nick Clegg as giving a courageous defence of the coalition's purpose.  More interestingly, he suggested that we should not underestimate the strategic significance of Ed Miliband's speech.  Tempting though it was to describe it as signalling right while turning left, while it was not New Labour as Peter Mandelson knew it, it wasn't Old Labour either.  David Cameron had been similarly blunt.  Peter Mandelson agreed in particular with two things that David Cameron had said.  First, he agreed that people don't vote to make themselves worse off - aspiration was an important theme.  Secondly, he agreed that the choices being made now will shape the nation's economic future in a very direct way indeed.

Peter Mandelson was hoping for only a decade of lost growth and the reversal of the upward trend of public expenditure.  We are looking at a long term period of reduced income and living standards for the overwhelming majority and a reduced safety net for those in need.  These conditions would have to be dealt with whoever was in power.  The outcome of the next election was not going to alter the fundamental truth of these conditions.

He then turned to address the political realities as he saw them.  The right would need to concede that increased revenues would need to flow from the relatively wealthy.  The left would in turn need to concede that social benefits provided by the state would need to be lower.  The challenge for both left and right was to come to terms with both these things.

Peter Mandelson wanted to minimise the deterrents on innovation.  He thought we need to see more people take more risks in the private sector, and tax rises needed to minimise the impact on these incentives.

We could be assured of a very bumpy time.  The public was increasingly anxious, rebellious and intolerant of the effects of the downturn on them.  He highlighted the recent drift to fringe parties across Europe.  Before 2007/8, mainstream parties in Europe commanded just over 75% of the vote.  This made forming coalitions easy.  In 2012, this has already fallen to 57%., with the rest going to marginal parties.  Paradoxically, he thought, people aren't looking for a new radicalism, this move was prompted by a resistance to change, a conservatism, a resistance to depressed living standards and changes to public spending, to globalisation, to inequalities and to the changes in European structures as a result of the Eurozone crisis.

The UK was relatively more stable, but even here we have seen more fragmentation, as witnessed by the fact that we have the first peacetime coalition in 80 years.  Labour and the Conservatives were both looking away from the centre for votes - Labour to the left and the Conservatives to the Eurosceptic right, with the Conservatives being terrified by the rise of UKIP.

There was a real chance created by the turbulence that short term political mistakes would be made by governments with long term consequences.

He briefly touched on the subject of the banks.  He was not going to defend them, they had to change.  We needed them to return to focussing on the idea of quality rather than quantity and we had to implement Vickers.  We had to remember above all that we have to see a capitalism that's a darn sight more productive than in recent years.  But a perpetual debate about acceptable standards in banking and repeated threats of regulatory change had the risk of destabilising the banking sector without bringing compensatory benefits.  We need a period of regulatory stability.

We also need stability in the rest of the public sector and the real economy.

He then touched on the subject of decision-making.  We needed to get away from the stop-go nature of decision-making in Britain on changes of government.  When he was a European commissioner, he had had his eyes opened by the superior nature of longterm decision making in other European countries - he listed Germany, Scandinavia "and even France" as operating on longer term timeframes and working strategically with the public sector.

He gave an example of his own work.  When he had returned to government, he had introduced policies of industrial activism "not picking winners as in the 1960s and 1970s".  He had been accused of acting like a Bourbon king and the scheme had been scrapped when the coalition took over.  Now it was being resurrected in the growth strategy.  We need to stop these stop-go policies on a change of government.  The same applies to the UK's attitude to Europe, to which he turned next.

The EU was going through what in his words was "a ginormous crisis".  Indeed, it was not one crisis, but multiple crises - a banking crisis, a sovereign debt crisis and a political crisis (he listed a fourth, but here my notes fail me - I think he said a social crisis).  The UK may not be part of the Euro, but we'd be badly impacted if the Eurozone collapsed.  Whether or not you approved of this project, what would be worse would be to see the whole thing fall apart.  Britain's priority should be to make sure that it survives. 

He was worried that this Conservative-led government was embarking on an excursion for other reasons.  He cited the proposed abandonment of the European Arrest Warrant.  The government was threatening to veto the budget if its opening position was not met in full.  In December, the UK was signalling that a meeting to discuss future treaty changes necessary to sort out the Eurozone crisis would be boycotted unless the UK got unrelated changes on terms dictated by it. 

Peter Mandelson recognised that the UK did have national interests.  As European commissioner, he had been keenly aware of this and knew where they needed to be reflected.  But you needed influence and allies to prevail.  It was a consensual process and we had to build alliances.  To divert or blunt an unwelcome proposal you needed more than one or two others alongside you.  You needed to be pragmatic and thinking in the longterm, being supportive of EU colleagues rather than disruptive or standing aside.  What Britain was doing now was like negotiating with the fire engine on the way to the fire.  We mustn't allow Eurosceptic interests to set us on an irreversible break - this was in neither the UK's nor Europe's interests.

More generally in politics, we needed to be less adversarial.  Disagreement was becoming a luxury that we can no longer afford as much.  He was not suggesting an end to politics, but better government.  It behoved all politicians to look to the longterm interest and not just look for shortterm advantage.

In questioning he made it clear that he supported the OBR and the ONS getting increased independence.  He acknowledged that with hindsight the government was wrong to have relied on the permanence of credit, while noting how difficult it would have been for government in good times to have taken action to get a programme of public and private sector deleveraging in place.  We were now, however, looking at at least a decade of deleveraging the debt that had grown on the back of credit-driven growth.

In response to an inevitable question, he also gave a betting tip free - don't bet on Tony Blair ever admitting that the invasion of Iraq was a mistake.  In his view, if it was a mistake, it was an honest mistake.