From the directives that govern the way we do business, to the chilling effect of the eurozone crisis on our exports, the European Union pervades our daily lives like never before. Like many of my colleagues on the Tory benches, I believe that renegotiating the terms of our membership is vital for this country’s long-term prosperity. Personally, I would prefer Britain to remain within a more flexible EU, with access to the single market but without the excessive regulation, or constant efforts to direct social, justice or foreign policy. But if that’s not possible, I believe this country could – and should – thrive outside the EU.
But we also need to remember that becoming masters of our own destiny is not the same thing as mastering it. Writing in The Daily Telegraph yesterday, Boris Johnson urged us to face up to the fact that “most of our problems” are of our own making. He’s right: the European bogey must not become a crutch that allows us to duck our immediate, home-grown, failings.
Take the scale of our debts. Everyone accepts that Britain is still struggling to shake off the hangover from a toxic cocktail of excessive borrowing by government, households and the banking sector. According to IMF figures, total government debt has now crossed the notorious tipping point – of 90 per cent of gross domestic product – that the Harvard economists Carmen Reinhart and Kenneth Rogoff warned leads to seriously stunted growth. Academics might quibble over whether this tipping point leads us off a cliff edge or just down a steep and slippery slope. But the fact is that the UK still has a spending problem that is far greater than most of us realise.
On top of government debt, Labour encouraged families to incur reckless levels of borrowing. Between 1997 and 2009, household debt as a share of GDP rose by a third. It has started to fall back since 2010, but remains at 98 per cent of GDP – leaving many families acutely vulnerable to any increase in interest rates. And government and household debt is dwarfed by the liabilities of the banking sector, which have reached a stunning 427 per cent of GDP. British banks are also massively exposed to the eurozone crisis, far more than most Continental ones. Add these three components together, and Britain’s liabilities are the largest in the EU – a problem entirely of the last government’s own making.
The next great problem is our chronic skills gap, which saw Britain plummet down the international rankings in maths, literacy and science. Labour’s arbitrary goal of getting 50 per cent of youngsters into university led to the proliferation of what one of its ministers called “Mickey Mouse” courses, which have benefited neither the students nor the economy. A 2005 Ofsted report found that almost half of those in their twenties said their education had not prepared them for their first job. Far from blaming Europe for this, Michael Gove is rightly learning from it – promoting innovative Swedish-style free schools and a more German emphasis on vocational training.
Next, for all the hand-wringing over EU regulation, there is plenty the UK can do by itself. Cutting Whitehall departments and spending, privatising Royal Mail and selling off the state’s shares in the banks would allow both the deficit and business taxes to be cut further and faster. Add in a proper shearing of domestic red tape – something stubbornly resisted by the Business Secretary – and confidence could turn the corner. Finally, Boris is also right to confront home-grown “sloth”. The Government’s welfare reforms are vital in terms of making work pay. Similarly, asking people to work a little longer to provide for longer retirements is common sense. But we also need to incentivise hard work by overhauling marginal rates of taxation and creating the right conditions for start-up companies to expand and thrive. The scale of these problems puts the debate over the EU into perspective. If we left, the ability to cut red tape and forge free trade deals would present enormous opportunities. Yet the unions, the BBC and the Labour Party – as well as many Liberal Democrats – would still scream blue murder over every attempt to ease the regulatory burden on entrepreneurs. Similarly, the Foreign & Commonwealth Office has lost much of its expertise in trade – and turning the opportunity to open our markets to those of the emerging nations into solid economic gains would not happen by accident. Instead, it would require a paradigm shift in diplomatic focus. Brussels is a worthy lightning rod for criticism, but it must not be used to excuse fundamental British shortcomings. Whether we are in or out of the EU, we must deliver reform at home in order to compete abroad in the 21st century. Dominic Raab is the Conservative MP for Esher & Walton