Day two at the Tory conference: U-turns and Brexit cast shadow over growth agenda

Day two of the Conservative Party conference was dominated by Kwasi Kwarteng’s U-turns and an overriding sense that, after 12 years in power, this this was a party with no real plan and few ideas.

When you have overseen a decade of tepid growth, two recessions and two major devaluations in the value of the pound, it becomes increasingly hard to pass the blame to anyone other than yourself. And yet this is what Liz Truss and Kwarteng are brazenly seeking to do.

The frustration and boredom of some of the party’s big beasts was on open display in Birmingham, while newly appointed ministers appeared so unsure of the shifting terrain around them that all they could do was repeat promises that policies would be coming along soon.

>> Also read: Day one at the conference: Is levelling up dead in the water?

Michael Heseltine , the urban regeneration pioneer and veteran of Conservative governments from Heath to Major, repeatedly thundered, “What was the plan?” in utter bemusement at Kwarteng’s seemingly uncosted approach to running the county’s finances. “Things are looking pretty bleak,” he said, before emphasising that the government needed to start clarifying its fiscal plans soon. “Like, this afternoon,” he suggested.

Lee Rowley, the new housing minister continued on his round of conference events where he meekly defers to the rest of the panel and says that policy clarity will be along soon.

Deflection was much in evidence, with the party seeking to take credit for the performance of seemingly less disaster-prone elected mayors in the West Midlands and Tees Valley.

Michael Gove certainly took credit for Kwarteng’s rapid change of fiscal policy on income tax. The chancellor had “very gracefully acknowledged the strength of that argument”, Gove said, before adding that he was now going to “take a step back”. Presumably to indulge in a touch of schadenfreude as the government appears to implode in his absence.

West Midlands Combined Authority and HS2

This year’s conference is of course in Birmingham, where Andy Street has been the Tory mayor of the combined West Midlands authority since 2017. A former head of John Lewis, he is widely seen as a pragmatic centrist, happy to work across party lines to deliver for the wider region.

The Conservatives seem keen to take credit for what they portray as Street’s successes, such as the recent Commonwealth Games, although this might raise eyebrows among many of the Labour-run local authorities that shared responsibility for the event.

Congratulating Street, and pushing the government’s new investment zone agenda, Nadhim Zahawi, Chancellor of the Duchy of Lancaster, said: “I want the first investment zone to be here in Birmingham.”

Zahawi and Street both declared their commitment towards bringing a gigafactory to Coventry. “We will do everything in our power to make the offer as attractive as we can,” said Zahawi.

Street then announced that he had agreed with Coventry City Council and Warwick District Council that he would be putting forward an application for an investment zone in the area to facilitate the new gigafactory.

Asked whether rumours that HS2 could be scrapped were true, Zahawi said: “There is no way HS2 is going to be scrapped. HS2 is going ahead.”

The long shadow of Brexit

Much is being made of the government’s proposed new investment zones, which some are comparing to the free enterprise zones established by Heseltine during Margaret Thatcher’s first government.

Lord Heseltine was in Birmingham yesterday to make the case for devolution and re-joining the EU. The event was hosted by the European Movement, an organisation set up by Sir Winston Churchill in the wake of the Second World War to promote cross-continental cooperation.

To be successful, Heseltine said that his free enterprise zones had “had to have planning powers, land acquisition powers, leadership and certainty they would still be there in four to five years”.

Full details about the new investment zones are not yet available, although Rowley did say he expected more information to emerge over the coming weeks.

Taking aim at what he perceived as government failures, Heseltine bemoaned the lack of a single point of contact for local authorities seeking to speak to government about leveraging public investment opportunities. “How many phone calls do you have to make to Whitehall now?” he asked.

“You can’t run a successful economy like that. And no other capitalist country tries to do it – they have strong devolved governments.”

He also emphasised the need for government ministers to get on the ground and understand the local context. “My whole experience of urban regeneration is that you have to go there and listen. The weakness of the current system is that they think Whitehall knows best,” he said.

Urging Truss to reject what he saw as “appalling” short-term politics, he said she needed “to appoint ministers who know what they are doing. Stop chopping and changing.”

Heseltine was keen to attribute many of the UK’s current problems – including low growth – to Brexit. Responding to the government’s repeated claims that it will unleash British competitiveness by repealing EU legacy regulations, he asked: “Which regulations are they going to get rid of?”

He also highlighted the huge economic uncertainty created by the government’s promise to look at the entire regulatory environment. “What does that do to someone looking to invest in this country?” he asked.

Talking about the climate crisis, Heseltine said: “The younger generation are not going to tolerate the growing environmental backwardness and the idea that we can afford to ignore what is happening to the environment.”

He also floated the idea of a land commission and land registry, with the public sector taking a far more directive role in regeneration, with “power to buy and reclaim development land”.

At the same event, former justice secretary David Gauke (one of the Tory pro-Europeans kicked out during Boris Johnson’s 2019 purge), said that “one of the best ways to address our economic growth is to address the problems caused by Brexit”.

It is not a view widely shared – or least widely aired – elsewhere at the conference, and we may be waiting some time before a British government is able to admit that the barriers to trade created by Brexit are hobbling the economy.

Sadiq Khan gets a “reset” request from London minister

Paul Scully, the minister for London, told me that he was hoping for a “reset” in relations between the government and the capital’s mayor. Scully said he was frustrated that,  while Khan happily acknowledges government support for London behind closed doors, he continues to disparage the Tories in public.

Scully said he was looking for Khan to be more “up front and accountable” with the people of London, saying that there no point in a mayor who did not take responsibility for their own administration’s failings.

“Since the change in PM he is having friendly talks with the secretaries of state for transport and levelling up, so perhaps there’s a chance for a reset,” Scully said.

Regarding the challenges facing Transport for London he restated the government’s support. “Clearly the government is not going to let London fall over,” he said. But he was keen to see Khan make savings and changes in return for continuing central government funding for the capital’s transport system.

Scully also told me he was ready to “consider changes together” with Khan, but that the government needed “to make sure the mayor is doing his share”.

Whether the mayor will see things from the same perspective remains to be seen.

Thames Estuary

The government is keen to build on the perceived successes of the Tory mayor of the Tees Valley, Ben Houchen, who has overseen the implementation of three enterprise zones within his combined authority. This has contributed to a growing focus on the economic potential of the UK’s estuary economies.

Kate Willard, chair of the Thames Estuary Growth Board, spoke about her plans to help unlock investment. It was all about “growth, growth, growth – good, green, fair growth,” she said in a boosterish performance that might have made Boris Johnson blush.

The focus was on untapping the entirety of the Thames’s river-frontage, with a reinvigorated Thames Pathway. Willard also pointed towards the growth board’s work in proposing a new “hydrogen ecosystem” around the estuary, to promote new clean river-borne freight.

Pointing out that much of the water-borne traffic along the river is currently either waste being carried out of London or building materials going in, she said there was huge potential to expand commercial use of the Thames.

She called for the government to invest in a hydrogen innovation centre on the estuary and made the case for more light freight, using “clean boats” and looking at opportunities to combine river-borne logistics chains with existing passenger services.

Scully was keen to put the development of the estuarine economy within the context of the government’s evolving investment zones agenda. He described investment zones as “freeports plus”.

Paul Carter, former leader of Kent County Council, called for a combined authority to cover the north and south banks of the estuary east of London, as well as a third Thames crossing, the lack of which he described as a “huge inhibitor” to investment.

Indeed Carter was disappointed not see a third crossing in the government’s latest list of infrastructure priorities. “I wouldn’t say a third crossing is off the agenda,” said Scully in response.

Net zero and the green economy

During a discussion about the new infrastructure that Britain needs in order to deliver a net zero economy, former minister for universities and science Lord Willetts was warned that there was “a real risk” that Kwarteng’s tax cuts “would lead to a fall in capital investment” in the UK.

Juliet Davenport, president of the Energy Institute, argued for “fundamentally re-engineering the economics of energy”.

She added: “If we want to get growth, then we need to reduce energy consumption. And if we reduce demand, we can address the cost of living crisis.”

But she highlighted one of the bottlenecks in delivering this change as being the lack of skills in the economy. “Universities are at capacity on training and retraining for net zero,” she said.

Willetts responded by making the case for a more flexible education system that did not require young people to make key choices about subjects and career choices so early.

He called for more flexible routes into engineering. “Our job is to liberalise the system,” he said, calling for new ways for students without classic engineering A-levels to move into the net zero sector at a later stage.

Promoting SME house builders

There seems to be a growing consensus across the Conservative Party that to drive up volumes, choice and quality, the government needs to be encouraging the return of more SME firms to the housing sector.

Gove coruscated the volume builders on Monday. “Many of the large house builders are land investment speculators, not really house builders,” he said.

Speaking of the reasons why so many people seemed to oppose new housing development, he said “design and quality is not prioritised” and that too often planning inspectors “override local objections”.

Calling for reforms to the planning system to encourage “more SME and artisan house builders”, he also said that we “need to take account of beauty and quality in architecture”.

Talking about falling rates of home ownership and issues around affordability, he was highly critical of the UK’s culture of treating housing as an investment vehicle. “Sorry to be a revolutionary, but we have unfairly subsidised private landlords and buy to let,” he said.

Speaking more generally about the UK economy, Gove went on to say that there was “too much investment in property rather than equity, which is not good for growth”.

Elsewhere at the conference yesterday, Stuart Baseley, executive chairman of the Home Builders Federation, also talked about how to encourage more SMEs into the housing sector. “I don’t think we need wholesale strategic planning reform,” he said. “We just need to make the system we have work, rather than tinkering with it.”

Rob Boughton, CEO of residential developers Thakeham Group, bemoaned the endless consultations his company had to go through when taking a scheme through planning and suggested that such processes could be reduced in number and streamlined.

While expressing a willingness to pay more in planning fees to help unblock the current planning system, Boughton expressed frustration at paying upfront for planning p-performance agreements before any applications had even been lodged. It was “hugely costed” he said, and a likely barrier to SMEs entering the market.

Discussing the impact of “nutrient neutrality” requirements imposed by Natural England, Baseley said: “We all want to protect the environment, but it’s got out of balance.” Pointing to the thousands of homes that were being held up, he said that, “for now, existing consents are being built, but soon house building will stop. I know SMEs who are struggling because of this and will go bust.”