The mt diary: Howard Davies

The DTI rises again; Europe, France and perfidious Albion; Bloomer will blossom again.

by Howard Davies is the director of the London School of Economics
Last Updated: 31 Aug 2010

After months of Whitehall rumours forecasting its demise, the Department of Trade and Industry was finally abolished by the prime minister on 6 May 2005. Six days later, it rose again from the dead and again sitteth at the right hand of Tony Blair. The resurrection took twice as long as Jesus Christ's, but it was an impressive recovery nonetheless. Minister in charge Alan Johnson can be proud.

I am sorry, in a way. First, because I had a bet that the DTI would go after the election, and I'm now arguing with a friend about who gets the money. Lawyers are bound to be involved. But also because the proposed new moniker - the Department of Productivity, Energy and Industry - seemed to offer plenty of scope for innocent fun.

In Canada, PEI stands for Prince Edward's Island, an agreeable destination in the St Lawrence estuary whose principal - almost sole - industry is tourism. Perhaps the brief flirtation with a new acronym gives a clue to the government's new, post Roverian, industrial strategy.

Now that the DTI is back with us, it is hard to see anything of great significance for business in the reshuffle.

Digby Jones, no doubt suspecting that his members might shortly be asked to pick up a heavy fiscal bill, got his retaliation in first, warning against tax rises.

Unfortunately, someone is going to have to cough up before long. We have now had 13 years of growth, the longest period of expansion since the Black Death, we are told (I hadn't realised the economy was in such good shape before the plague struck).

Yet the PSBR is pushing 3%. Australia, which has done as well over as long a period, is running a healthy surplus.

So some kind of fiscal tightening is inevitable. One route would be to slow down planned spending increases. But a government newly committed to listening to the electorate would be hard pressed to argue that what they have heard is pressure for less spending on the NHS. Treasury officials must be looking for some new stealth taxes even now.

Tax increases, wherever they fall, will not improve the context in which the European referendum will be fought.

The word Europe was barely mentioned during the election campaign. All three big parties had their own reasons for leaving it aside. Even for the supposed enthusiasts, Europe is the love that dare not speak its name. It will not stay on the back burner for long, however. Unless the French (or the Dutch) do the decent thing and vote 'no', the constitution debate will dominate British politics in 2006.

The Government's chances of victory in that referendum have been diminished by the ambiguous election result. The fortified Conservatives will now be able to run a stronger 'no' campaign and pro-European Tories are increasingly marginalised. The polls suggest that the electorate remains to be convinced. If the Government has a strategy for victory, it has not yet given us a glimpse of what it might be.

I found myself, unwittingly, in the heart of the French campaign for a day, sharing a platform at the Political Science School in Paris with Laurent Fabius, the chef de file of the non campaigners on the left. We were supposed to be debating the euro and its impact on growth, but that topic soon fell by the wayside.

In France the constitution is portrayed by the rejectionists as a triumph for l'ultra liberalisime anglo-saxon, a selling point that has not been used over here. Somehow it has been presented in Paris as all of a piece with the now abandoned Services Directive, which would, in French eyes, promote 'le social dumping'. The French always describe things they don't like in English. In this case, it means that non-French workers might be allowed to be paid less than a French worker, which would never do.

There's also a dog-whistle dimension. Pensez-vous ce que moi je pense - that the Turks might one day find their way into the EU, and overrun Provence and points ouest? Again, it's not quite clear how the constitution delivers this outcome, but that doesn't seem to be le point. No doubt our own campaign will be similarly full of harengs rouges. I suspect that Jack Straw and his Foreign Office mandarins are trawling for them even now.

Institutional shareholders continue to flex their muscles. John Sunderland, of Cadbury's and the CBI, is not so sure he likes it. Nor, I imagine, is Jonathan Bloomer, late of the Pru, who has fallen foul of them. The board no doubt had cogent reasons for wishing to make a change, though it has been rather cagey about what those reasons might have been. But Bloomer left with dignity after bravely presenting his final results at the AGM, P45 in hand.

Amid the arguments about last year's rights issue, his achievement in restoring the Pru's reputation was overlooked. When he took over, the company was suffering from its bottom-of-the-class performance in the pensions mis-selling debacle. Yet, four years later, he was chosen by his peers to chair the FSA's practitioner panel - the key body that that speaks to the regulator on behalf of the industry. That choice would have been inconceivable under his predecessors.

Bloomer is young enough to flower again, and I expect he will.

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