Britain's political watershed.

This first article in our special feature is based on a speech analysing the issues facing the new Labour Government on five fronts: macroeconomics, investment, the privatised monopolies and regulation, corporate governance and stakeholders, and Britain's relationship with the European Union (EU). The author uses his personal experience to make a particular contribution on the privatised monopolies and regulation - "The regulation and deregulation debate has come to a gory head with the BSE issue". He outlines the significant areas being examined by the Hampel Committee on Corporate Governance which is due to report at the end of 1997. He is strongly in favour of "no change" on macroeconomic policy and for Britain to remain at the centre of the European Union. On investment he rehearses Britain's problems and their possible solutions, dismissing the argument that changes in taxation of corporate profits would increase the cost of pensions.

Britain has just had a General Election which has changed the ruling party for the first time in eighteen years. As an ax-historian, I think this election is of great historic significance. The analogy must be with the 1906 election, when the party political structure changed profoundly and the Conservatives went out of office for nearly eighteen years. In 1906, having imploded before the election, they lost control of the House of Commons and were decimated in the election. The Major Government did not collapse to that extent, but it came quite close. The second common feature with 1906 is that significant constitutional reforms took place during the new Parliament which arguably marked more of an historic turning point than the 1945 election. I rather suspect the 1997 election is going to be seen in history in fifty years time as a watershed of a similar sort.

I want to comment on five key aspects of that watershed (though I will make no reference to the two most likely areas of radical change - the constitution and welfare reform). They are:

* Macroeconomics

* Investment

* The privatised monopolies and regulation

* Corporate governance and stakeholders

* Europe

Macroeconomic Policy

Most business people would probably say that what we need is more of the same - that the Treasury line has been broadly right. Not many people believe that the new Labour Chancellor of the Exchequer, Gordon Brown, is going to vary it much.

One specific problem of the economy is the strong pound which is in part a by-product of the run up to EMU. The argument goes that a lot of Deutschmarks which are held outside Germany have to mature at some point: that converting a strong Deutschmark into an uncertain Euro in ten years time may be less attractive than converting to the dollar or sterling. That is the problem which is bedevilling the pound and there is no question that sterling is too strong at present. Perversely, the domestic economy is in danger of overheating which is best dealt with through raising taxes, rather than interest rates. The latter action will further strengthen the pound. This is a real dilemma.

The second problem is the extraordinary growth in public expenditure from 20% of GDP in the 1950s to just over 40% now - or even 50% in some countries. According to conventional wisdom, that percentage cannot be allowed to rise further, and should be stabilised or even reduce. That means curbing the rise in social security costs - particularly the cost of unemployment - which in turn can only be done by creating …