Michael Fallon is the Minister for Business and Enterprise and MP for Sevenoaks
Conservative governments always have to clear up the economic mess created by Labour. But we are about more than dry fiscal plans. Increasing competition; backing entrepreneurs; and scrapping regulatory barriers are our priority. Markets are the most efficient way to deliver benefits to consumers. Government’s role is not to try and control markets – whether by fixing prices or subsidising firms. We know what that does to incentives, efficiency, and competition.
As Milton Friedman said, the “government should be a referee, not an active player” – it should set a framework and ensure that markets are working effectively. One area where we need some proper Conservative policy is energy. Ed Miliband may have forgotten but we haven’t – Labour created the Big Six. There were 14 energy companies when they came to power and they left us with five.
Instead of damaging political cons like his Canute-like pledge to freeze prices, it is time to get energy back to the market. Consumers don’t trust energy companies to give them a fair deal. Little wonder when we have seen the depressingly familiar price increases from most of the Big Six. They control 98 per cent of the retail market. We need to break open the market for new entrants and more competition.
By making tariffs simpler we will encourage more of the 84 per cent of people who don’t switch to do so. And we will make it faster – when it only takes 24 hours to change your mobile phone provider it is unacceptable that it can take up to five weeks to switch energy company.
But I also want to remove barriers to growth among new suppliers. We increased the customer threshold before companies are subject to the ECO – one of the main green taxes. The dynamic impact of this is clear – there are now three independent providers with more than 100,000 customers and seven new entrants in the last two years alone. There is a strong case for increasing the threshold further so that companies are not discouraged from winning more customers. Some argue that this would penalise the Big 6. The benefits of competition to consumers should be our priority, not the interests of the Big 6.
And it is not just energy. One of the biggest complaints from small firms are the difficulties in getting finance that they need to grow. This owes much to an unhealthy concentration of lending. It can’t be right that 85 per cent of the market lies in the hands of just four big banks. That is an unhealthy concentration that has been reinforced by protective regulation.
In food retailing there’s a strong second tier beneath the majors; in banking as in energy there isn’t. A huge spectrum of financial technology innovation is taking place. New peer-to-peer entrants with a business model based on cutting out the middle man are offering a dynamic approach to most aspects of banking services and challenging incumbents.
That’s why we are championing new challengers by providing seed funding as well as reviewing regulatory barriers to growth. For UK firms competing in the global race it has never been more important to remove regulatory barriers.
That’s why the Prime Minister established a Task Force on EU Regulation. Its recommendations included completion of the single market in services where if all outstanding barriers were removed this could boost EU GDP by 1.8 per cent. At the October Council, there was endorsement by EU leaders of the need to tackle red tape. Deregulation is now part of the EU agenda in a way that it simply has not been before.
But competition is not just about traditional markets – we are breaking open public sector monopolies to drive up standards and choice. In education, we have ended the local authority monopoly. There were 203 academies in England in May 2010 compared to 3,364 now. More than one in four pupils attend one.
We have gone further by allowing parents and teacher to set up free schools: 174 free schools have opened, with over 100 more due to open next September. And they are driving up standards – 75 per cent of Free Schools that opened in 2011 were judged ‘Good’ or ‘Outstanding’ under the new tougher Ofsted framework; compared to 62 per cent of maintained schools inspected in the same period. Labour’s “parent led academies” are not free schools – they would only be allowed in specific circumstances. You can’t advocate half-free schools if you support parental choice.
In welfare and justice we are bringing new providers into delivering services by pioneering an approach based on payment by results. There is much still to do to create a truly competitive and dynamic economy. That is what Conservatives are in government to deliver.
This is an edited extract of a recent speech given by Mr Fallon at a Carlton Club Political Dinner