(12 years, 5 months ago)
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Baroness Kramer
That this House takes note of the importance of the Government’s growth strategy for the United Kingdom economy.
Baroness Kramer
My Lords, this has been an extraordinary and very moving day. I suspect that many of us heard the speech of Aung San Suu Kyi and share the same reaction to it: namely, that we were listening to something very special being spoken by an extraordinary, charismatic person in a way that was both moving and powerful. That probably makes it difficult for us to speak in this debate in a sense. However, I suspect that we are also encouraged by the virtues that she underscored in her speech: namely, the importance of democracy and of the parliamentary process. We can comfort ourselves that in speaking today we are sharing that philosophy.
My colleagues and I sought to initiate this debate as the issue of growth is so important. I was delighted to see the list of speakers, each of whom has a great deal to contribute in putting forward ideas and suggesting priorities and ways in which to tackle this extraordinarily difficult issue for our economy.
The background to the debate is that in 2010 the coalition inherited a badly damaged economy. The previous Government had built their boom on the back of tax revenues pumped up by false profits from the banks—a bubble that burst in 2008—and on the back of consumer spending pumped up by excessive consumer credit and a huge bubble in asset prices, particularly house prices. I remember that in the other place my colleague Vince Cable pressed the need to deal with excessive public and private debt but was generally treated with some scorn. However, public spending spiralled out of control in around 2004. Even before the bank crisis struck, the UK had the highest budget deficit in the G7. The country had no cushion at all with which to deal with any economic shocks, and the shock came spectacularly in 2008. I think most would argue that devaluation of the pound and ongoing public overspending helped to provide an initial cushion, but by the 2010 general election the UK was on track to have the highest deficit in the G20 and Liam Byrne was not kidding when he left that note saying, “There is no money left”.
However, the fundamentals were worse. According to The Plan for Growth, under various Governments the UK had,
“stopped saving, investing and exporting”.
Savings rates had declined to some of the lowest in the developed world. Manufacturing had fallen sharply as a share of the economy. The UK’s share of the global exports market had declined, largely due to our inability to succeed in exporting to high-growth markets. Some of your Lordships have often remarked with astonishment that Belgium exports more to China than we do. Only 6.5% of our exports are to the BRIC countries. The economy had become dangerously unbalanced by both sector and geography. It was far too dependent on financial services, far too weak as regards manufacturing and economic prosperity was concentrated largely in London and the south-east.
Since then we have made some progress. The Government have taken a grip on the structural side of the deficit, using both tax increases and spending cuts. The talk is of austerity but the truth is a far more measured pace of deficit management. In some ways it suits my Conservative colleagues and the Labour opposition to overegg the reality of the rate at which the deficit is being tackled. We will not see deficit reduction in real terms until 2014 at the earliest. It is quite a measured programme and, ironically, if you were to look at the Labour programme outlined by Alistair Darling and the current programme laid out by George Osborne, you would not find a significant difference. I understand that it suits the parties to highlight the difference, but the reality is that we are moving in a fairly measured way.
It also pleases me that the burden has fallen most on the wealthiest 20%, as it should do. A good example is that while corporate tax has been cut to competitive rates, the starting point of income tax has been increased to take more than a million low earners out of tax altogether. This Government have put forward numerous schemes for growth, which include a boost to the enterprise investment scheme, enterprise zones, a doubling of apprenticeships to revive our skill base, £1 billion committed to the Youth Contract, £1.4 million invested in the regional growth fund, half a million pounds invested in the Growing Places Fund, and investment in the green investment bank that will reach £3 billion in this Parliament. The list is long and I suspect that I can rely on the Minister in his closing speech to add significantly more detail to it. The financial markets have responded and shown sufficient faith that long-term borrowing for the UK has fallen to lows unheard of in recent history. Most recently, one is looking at a rate of something between 1.5% and 1.7% for long-term borrowing.
Unemployment has been an ongoing concern, especially youth unemployment, and I suspect that Tuesday’s report of improvement, especially in the full-time jobs figures, will have pleased all noble Lords. I quote Brendan Barber of the TUC who said that it was,
“some long overdue good news”.
However, much more remains to be done, and it would be sad if we became in any way complacent. Whatever the outcome of the euro crisis, it will continue to be a drag on our economy for some time to come.
Like others, in responding to the issues that have been created in our economy, I have been interested to look at lessons from the 1930s. Recovery from the 1930s recession was not based on fiscal stimulus; and I say that because sometimes there is a myth that fiscal stimulus was the answer. That did not really occur until rearmament in the second half of the 1930s. Instead, devaluation and cheap money were key to recovery. In the UK, they led to a surge in housing construction. That strikes me as a useful lesson. Fiscal discipline has allowed the Bank of England room to use monetary policy, with significant QE so far, and I hope there will be more to come.
Lord Foster of Bishop Auckland
I am most grateful to the noble Baroness for giving way, but what is rearmament but public expenditure spent on arms, which creates jobs in the private sector?
Baroness Northover
Perhaps I may point out that we have a strictly time-limited debate; and if the noble Lord wishes to raise some points, perhaps he may seek to speak in the gap, and they can be answered in due course.
Baroness Kramer
I am happy to respond to that. It was exactly my point. Rearmament represented fiscal stimulus but did not come until much later when recovery was well under way. That is one of the important lessons for us—seeing how that recovery was achieved before fiscal stimulus came into the picture. As the noble Lord confirmed, it is an often-used myth that fiscal stimulus was the answer.
The equivalent today of cheap money has been quantitative easing and, to some extent, credit easing. As a consequence, we have had a weak pound, which, along with devaluation, has played a significant role in boosting manufacturing and exports that have carried us through several years at least, although they may not look quite as strong as they initially did. However, that played a definite role, and I am not trying to score party-political points but get back to how we deal with the issues.
However, I am very concerned that in attempting to access opportunity for growth, small businesses have found it extremely hard to get credit and lending from the banks. It is noticeable that in 1932, the banks worked and provided that credit flow to business. I would argue that we do not have that in the same way today. Effectively, we are looking at a banking system that is broken.
Because of all that, I welcome the Chancellor’s announcement of £80 billion for the Bank of England to provide what is now called “funding for lending”. If the banks prove capable of targeting the money at sectors such as small business and at home buyers who have the capacity and the appetite to invest, I think that it can make a difference in stimulating growth. However, my fear—I have expressed this before in this House—is that the banks no longer have that kind of knowledge base, the skills or the capacity effectively to reach small business. It is a custom business and it needs to be designed by people who really understand those to whom they lend. It is not a commodity business, and the banks that we think of as high street banks are essentially in a commodity business. Therefore, I urge the Government to look at RBS and Lloyds to see whether they can push a change in culture and approach so that those mechanisms are used to get the money to the small businesses that need it.
Small businesses provide something like half our GDP, and simply accelerating the plans that they already have for expansion and investment could have a significant impact on jobs and growth. I also say to the Government that, if there is more money for tax cuts, then tax cuts that would impact on the decision of small businesses to invest would be one of the best ways to use that money.
Housing also played a key role in the 1930s and I am sure that it can do so again. Once again—I have urged this before—I ask the Government to set aside a tranche of some of the credit easing for cheap funding schemes for housing associations, especially the small associations that cannot easily go to the market. One million pounds spent on housing repairs creates some 30 jobs. That is an amazing multiplier, and that is the kind of impact that I think we need to see now.
Nearly half a million unbuilt new houses have planning permission but the developers are holding off on construction. We need to tackle this because it could obviously provide a quick win. Land banking at this time is not an appropriate strategy. If financing is the problem, then this is a chance for the Government to tackle it. I am very glad that the Chancellor has now said that he will use the national balance sheet to try to unlock money for housing, as that could make a significant difference.
Pushing the lever on infrastructure spending can also happen through local government. The Local Government Finance Bill is on its way through this House. Tax increment financing is included in the Bill but is so constrained as to be minimal. I ask the Government to look again at tax increment financing, because each local authority has much low-hanging fruit in small infrastructure projects that could unleash new opportunities for growth with a very powerful multiplier effect.
Looking at the list of speakers in this debate, I can see that many colleagues on all sides of the House will be talking about growth in particular sectors—for example, tourism and the creative industries. Again, I think that a sector-by-sector approach to stimulating growth at this point would be powerful in assisting the economy. Therefore, I shall listen to those speeches eagerly to see what lessons can be learnt.
Earlier, we had a debate on social investing, social enterprise and the voluntary sector. That is a neglected area. In a sense, it has been the poor relation so far as concerns financing and investment. Now, there is potential in the City and other places to look at social impact bonds. What is also needed is a willingness by individuals to invest socially, so that, although they want profit, they give up an element of that profit in order to meet a social objective. Tapping into that will start to deal with some of the hardest-to-meet but quickest gains that we can achieve in our economy.
At the bottom of this, growth must be sustainable. It cannot be built on the back of another public spending bubble that will simply burst, and that seems to be the challenge facing this coalition. I shall listen eagerly to all the speeches because I think that it is the responsibility not just of government but of our two Houses more broadly to come forward with ideas that can provide the growth, jobs and prosperity that the country needs. I beg to move.
Lord Popat
My Lords, I thank the noble Baroness, Lady Kramer, for bringing this debate before the House. My noble friend the Minister also very kindly responded to a recent debate on business finance, so I shall do my best to avoid repetition.
The economic climate we find ourselves in is undoubtedly one of the most challenging scenarios that this country has faced in recent history. Yet its origins were longstanding. There was far too much public sector borrowing and far too little investment in infrastructure; there was too much reliance on the City and the services industry and not enough was done to reform education standards; and there was too much regulation, taxation and compliance for small businesses and not enough exporting to high-growth economies. The tough decisions were unfortunately delayed and the strategic approach to the economy was left wanting.
Unfortunately, this Government inherited an economy in dire need of drastic action. The Government have taken the first, and most important, step to stabilise our great economic ship and they have set out a credible strategy to bring down the deficit that has reassured the markets and allowed Britain to bypass many of the symptoms of uncertainty facing other economies. The announcements this week of falling inflation and unemployment numbers are yet more signs of an improving economy. Now it is time to set an ambitious course for our economic ship. The Government are rightly committed to rebalancing the economy, leaning back towards the private sector for economic growth.
I wish to focus on two of the four main objectives set out in the Government’s growth strategy; namely, to,
“make the UK the best place in Europe to start, finance and grow a business”,
and to,
“encourage investment and exports as a route to a more balanced economy”.
As I have said in this House before, whenever I speak to small business owners, I hear about the difficulties that they are having with financing. I am pleased to report that I am beginning to hear reports of businesses being helped by the £20 billion national loan guarantee scheme—a brilliant scheme that has effectively no cost to taxpayers—and the long-term funding from the Bank of England to our domestic banks, as announced last week, will undoubtedly help small businesses.
In regard to regulation, the Chancellor said recently in the other place that the total cost of regulation imposed on businesses since 1998 is almost £90 billion a year, a staggeringly high figure. Like many businessmen, I have been encouraged to hear the Government's plans to reduce regulation particularly in regard to staffing issues. I strongly support the work to reduce the regulatory burden on small businesses. Yet I remain concerned that the very necessary changes to the planning system may struggle to materialise as desired and that our planning system will remain, as the Chancellor said, a chronic obstacle to economic growth. We must ensure that our small businesses do not continue to invest thousands of pounds in consultants, lawyers and architects only to fall at the final hurdle of our planning system because of anti-growth attitudes in town halls across the country. Only this month my noble friend Lord Wolfson, the chief executive officer of Next, was quoted as saying that he had not spent £100 million he had set aside for investment because he could not get planning permission. Although Next is certainly not a small retailer, it is a clear example of ambitious firms having economic activity held back by a planning system that is not fit for purpose.
I move on to the desire to encourage exports. Many noble Lords will be aware that the UK’s share of global exports had declined from 5.3% in 2000 to 4.1% in 2010. I recently asked the Liaison Committee to consider establishing an ad hoc committee to examine the Government's work on aiding SMEs to export their goods and services, a committee that I am delighted to say has now been formed and is being chaired by my noble friend Lord Cope. I hope that this committee is able to bring about a series of suggestions to help our SMEs reach new markets. Unfortunately, while many of our large firms find it easy to transfer from domestic sales into exporting, that situation is very different for small businesses. Those SMEs which do not export often start doing so because of fortune rather than any strategic priority; and they tend to export to familiar markets, such as the eurozone, rather than high-growth markets such as India, China and, in the next 10 years, Africa. If we can reverse these trends, the effect on the UK’s economy will be positive for many years to come.
I do not wish to prejudge what the committee will find in its report, but it is vital that we review the diplomatic support that our companies receive overseas. The Government have in the past indicated a preference for more businessmen to be involved in our diplomatic relations, and this would be a welcome move to help prioritise growth. I also feel that we can be more proactive with certain countries and regions. For example, Britain has had little or no diplomatic contact with the Chief Minister of Gujarat—economically the fastest growing state in India—yet our international competitors are regularly knocking at his door. We cannot afford to be left behind.
I hope that we get a chance to consider the transport and infrastructure needed to help SMEs export. Our competitors are increasing their airport capacities as new markets open, and so must we.
The Prime Minister said in the other place after the Queen's Speech that:
“We must revive the private sector, spread growth and jobs across the country and make sure that financial services truly serve the economy—not the other way around.—[Official Report, Commons, 9/5/12; col. 25.]
He said that the task of delivering rebalanced growth will be achieved most effectively by “swimming with the tide” to take advantage of the long-term domestic and global changes, particularly the rise of middle-class consumers in emerging markets, spurring a greater demand for our services. That is exactly right. The most important thing is to make sure that our actions match our rhetoric, and that we demonstrate that not only is Britain open for business, but that we are a nation that thrives on seeking out new economic opportunities.
It is often disheartening to read press coverage of businesses in Britain, as if profit were something to be avoided. I believe that this Government are demonstrating that not only do we welcome businesses, but we want to support them. The Government's growth strategy has the right aims and I hope that they are able to rise above the inevitable criticisms they will encounter as they make the right decisions to sail Britain into bluer, calmer and more prosperous waters. Through taking tough decisions in the short term, such as increasing competition in the finance sector, improving our infrastructure, boosting our exports to the high-growth markets of the future and reforming our planning system, we will give businesses, entrepreneurs and investors the confidence to grow our economy.
Lord Bhattacharyya
My Lords, I thank the noble Baroness, Lady Kramer, for securing this debate. I declare an interest as chairman of the Warwick Manufacturing Group.
In many ways, this debate is the companion to that led by my noble friend Lord Adonis last Thursday. If last week we focused on the human cost of recession, this debate is about building a better future. When discussing the Government’s growth strategy, the first question is, “Which strategy?”. There is the “cuts first” plan, which says that the key to growth is rapid deficit reduction. There is the “credit easing” plan, which prioritises lending money to the private sector, and there is the “deregulate for growth” plan, which argues that what limits growth is the inability to fire workers. What do these alleged growth plans have in common? They claim to offer a quick fix—just cut, lend or deregulate and things will be okay.
But the search for easy answers is the problem. For decades, the national hunger for a fast buck meant that long-standing industries were decimated. British expertise vanished and excellence in technology went overseas. We outsourced our industrial heritage and now we are paying the price. Most of the government policies will do nothing to change that.
However, I welcome one of the Government’s strategies for growth which emphasises infrastructure, investment, skills, R and D, construction and using procurement to drive growth. Sadly, it is known to us only thanks to a leaked letter from the Business Secretary. I am here not to bury Vince but to praise him. When the Business Secretary told the Prime Minister that Britain needs,
“a compelling vision of where the country is heading beyond sorting out the fiscal mess”,
and,
“a clear and confident message about how we will earn our living in future”,
he was absolutely right. But who is working on industrial policy for the long term? Who is arguing for creating a real British bank in order that there can be lending? Who has taken the risk to address these issues, even rightly criticising our record in the process? It is Ed Miliband and his team, led by Ed Balls and Chuka Umunna.
Therefore, a coalition for long-termism is forming. It must not be some temporary partisan alliance. No long-term agenda can succeed if it is based on party lines. It should extend from the work that the noble Lord, Lord Heseltine, is doing for the Business Secretary as regards the industrial policy review. My party is conducting the same type of thing. The first challenge is to sustain—not even to make it grow—the manufacturing share of our economy, which is just over 12% of GDP according to the latest figures. Manufacturing matters because it alone can provide capital investment, R and D and exports to drive sustainable growth. Manufacturing represents just over one-10th of our economy, but more than 70% of our business R and D, and 46% of our exports.
Manufacturing cannot be made to grow at the click of a button. You have to create a sustainable ecosystem, which takes skill. Real change is not about numbers and training schemes; it is about changing our whole culture, from companies to government to schools. It is not about spinning a new mantra for the Daily Mail every day. Germany and Japan already think long term—from Berufsabschluss to Senmon Gakko. We too must develop a skills system based on market need and not on getting people off the claimant count.
The same is true of infrastructure. We need not a few shovel-ready projects but a sustained programme of investment in transport, energy supply and the environment, so that suppliers can invest with confidence. In R and D, we must achieve critical mass in a few key technology areas and not spend a little all over the place. If low-carbon transport, digital technology, aerospace and energy are our priorities, we must commit to them from blue sky to shop floor.
Our research grants on internal combustion engines are a key element of the UK automotive sector. We currently fund basic research in an unco-ordinated way when we should keep a focus on low-carbon research. EPSRC spends £750 million a year. It is reasonable to ask how that fits with our national innovation priorities. This is not about questioning the Haldane principle but about clear strategic focus. As the Business Secretary said:
“Our actions are, frankly, rather piecemeal. There are lots of individual funding decisions that lack support in other policy areas, or are not followed through systematically”.
We need to bring together research funding, procurement, skills and the supply chain, and give our key industries a voice in each. These key sectors need oomph at the heart of government. The Automotive Council has made a big difference. It helps to develop common priorities for innovation, encourages investment, and links together the UK supply chain. Other sectors need the same support. The failures of the past mean an industrial strategy that is often criticised as picking winners, yet short-termism means that we create too many losers.
When manufacturing firms do not invest in capital, R and D or people, they discover their weakness far too late and collapse. Instead, we must create an environment in which long-term minded businesses prosper. For decades, British business has been gripped by a consultancy and fast-buck culture, which means that you cannot get long-term financing. Even if you can, our reward structure discourages investment. Then we find these low-investment, low-capital firms are mobile and can outsource jobs, and we can do nothing to prevent them leaving. We end up as a nation of nervous shopkeepers and insecure bank clerks.
We can change this—not by picking winners but by shaping sectors. Our focus must be on leading and creating markets. For example, investing in R and D is not about patents or exploiting intellectual property. The days when you could live off patents are over. Business R and D has become a purchase of the ability to create and shape new markets.
A focus on market leadership through innovation encourages sectors to work together to develop common expertise from large firms to start-ups. It becomes self-sustaining, a positive loop of investment, innovation, leadership and new markets. If government supports sectoral innovation, we can pull supply chains to the UK. This will increase profits and employment and encourage foreign investment. If we think long term, we can build, without extra spending, an economy built on investment not speculation—on sustainable value, not flash-in-the-pan booms.
A coalition for long-termism is emerging, but it is not yet in power. That would require the Government to deliver on the agenda in the Business Secretary’s letter. Unfortunately, so far the Government have paid only lip service to it: a press release here, a stunt there. I hope the Business Secretary can change that. If he cannot, we on this side of the House, led by Ed Miliband, will deliver on that long-term agenda. In either case, I am grateful for the work of the Business Secretary and only hope that he will soon find a more long-term alliance than the temporary coalition he is in today.
Lord Clement-Jones
My Lords, I am not going to be provoked. I thank my noble friend Lady Kramer for so expertly setting the scene for this debate. A question on so many people’s minds is, “Where is the growth going to come from?”. I want to focus on the sectors with great potential for growth for which the DCMS has prime responsibility—the creative industries and tourism—both of which, I am glad to say, received some attention in the Treasury’s plan for growth last year and in the update this March. On the way, I also want to touch on higher education.
First, however, I shall say a word about the Olympics. There is no doubt that this has been an extraordinary achievement for the ODA, LOCOG and all the others involved in the preparations for the London Olympics. We were, however, promised a business legacy for the Olympics and I wonder whether the Minister can explain why it appears that, through the IOC rules, some 75,000 businesses will be banned by their contracts for 12 years from declaring that they have acted as a supplier to the Olympics.
Although official breakdowns of statistics are not helpful in this area, the digital and creative industries combined seem to contribute at least 7% of UK GDP, and those employed in the creative and digital fields now number perhaps 2 million. We are pre-eminent in so many areas but there is very strong competition internationally in a number of areas in the sector. I therefore welcome the new tax relief for video games, animation and some TV production that was introduced in the last Budget. Perhaps we will see an improved tax relief for co-productions in next year’s Budget. It is also noticeable how much investment is being made in film and television production—and at this point I should say “of the legitimate variety”. I very much welcome the formation of Creative England to support film and television productions and the activities of Film London to attract film and TV production to London. The UK Film Council estimates inward investment in the film industry at nearly £1 billion per annum, but there is a great deal to be done to secure optimum growth in this sector.
Skills issues in the creative industries need to be properly tackled in each part of the sector to ensure a talent pipeline. Shortages of skilled workers are a particular problem for the creative industries. I welcome the co-ordinated approach adopted by the report of the Creative Industries Council Skillset Skills Group to the Creative Industries Council earlier this year. The report made many extremely useful recommendations, many of which essentially involve action by the industry itself. However, as the Creative Industries Council and government Ministers have strongly endorsed the report, what are the Government, in particular, doing to improve and mitigate further regulatory measures, particularly the regulatory framework for freelance training as part of the Red Tape Challenge? What are they doing to make sure that sector skills council roles are clarified and communicated?
I welcome the strategic partnership between Creative Skillset, the skills council for the creative industries, and Creative and Cultural Skills, which covers a different group of creative industries, but surely there is a strong case for merging the work of the two and ensuring that skills issues across the sector are tackled in a fully joined-up way. The Creative Industries Council report urges greater “synergy and exchange” between STEM subjects and the creative industries. What action are the Government taking to respond to the recommended changes in the curriculum? Does this tie in with their response to the Livingstone-Hope Next Gen review of skills in video games and visual effects?
We also need to recognise that our creativity, ideas and intellectual capital will increasingly drive our future prosperity. The place of intellectual property has never been more important to society or our economy. The report in 2010 by TERA Consultants estimated that 250,000 jobs are at risk if we fail to do anything further about copyright infringement by 2015. The film policy review carried out by the noble Lord, Lord Smith of Finsbury, contained important recommendations about copyright issues, including sanctions for the recording of films shown in cinemas and the important question of implementation of the Digital Economy Act. What is the Government’s response to that? If they are serious about the health of the creative sector, it seems extraordinary that we can only expect introduction of the initial obligations code under the Act in 2014.
Although the Hargreaves report commissioned by the Government has some good aspects it relies on very dubious figures for its economic impact assessment. It seems to assert that current copyright laws in this country are inhibiting innovation, that copyright reform will somehow deliver a massive increase in our creative industries’ output and that copyright exceptions will make Britain more attractive for overseas investors, and so creators’ rights in the UK should be weakened. By contrast, in the first report of the digital copyright exchange feasibility study, Richard Hooper has put his finger on the real issue: there are barriers to the exploitation and licensing of intellectual property rights where there is complexity of process in the organisations involved in establishing ownership of rights, and in some cases insufficient availability of repertoire under licence. It certainly appears that the majority of responses to Hargreaves, published last week, are more minded to take the Hooper approach. There are exciting prospects for a Britain with a digital copyright exchange in place becoming an international hub for rights clearance, if we can get HMRC to negotiate suitable double-taxation provisions.
Turning to higher education, as the UUK report Creating Prosperity at the end of last year made clear, our higher and further education sector makes a major contribution to the development of talent and skill for the creative economy. Some 16% of our students are engaged in courses relevant to the creative economy. Rather than trying to restrict access for foreign students through our visa system, we need to create more internships for overseas students in the creative industries and the arts. As so many have said, not least London First and the vice-chancellors of our universities, we need to exclude non-EU students from our permanent net migration figures, as so many other countries, such as the USA and Australia, are increasingly doing. I look forward to hearing what the noble Baroness, Lady Valentine, has to say on this subject. Perception about UK visa policy is hurting our message that we are open for business and welcome international students and visitors.
How good are we at promoting the quality and potential of these industries overseas? Do we have the right architecture? I welcome the activities carried out by UKTI, in particular the appointment of the new IP attachés. I also welcome the signs of increased co-ordination between Visit Britain, the Arts Council, UKTI and the British Council, but how does that fit in with the Creative Industries Marketing Strategy Board or the Creative Industries Council? Is the Intellectual Property Office involved? If not, surely it should be. I certainly welcome the creation in 2011 of London and Partners as a single promotional organisation for London.
There is also the important question of investment in our digital and creative industries, particularly for start-ups and SMEs, and I particularly welcome the commissioning of work by the Creative Industries Council on access to finance. Can the Minister indicate any conclusions from its report, which I believe was presented to the council on 12 June, and when it will be published? Much depends on how attractive we are as a location for investment. The stories that could be told in our regional cities—for example, Liverpool, Manchester and Birmingham—are good ones. I applaud the Tech City initiative and UKTI’s involvement in that.
I shall not talk about broadband, but that is absolutely crucial to the further development of our creative industries. Tourism, however, is the world's fastest growing activity and the UK has enormous advantages and attractions. Although tourism is acknowledged as the third largest industry sector, employing directly and indirectly some 3.6 million people, there is still a lack of adequate government appreciation of its potential. Symptomatic is the recent letter from the British ambassador to China addressed to the Home Secretary about his frustration over the lack of promotion of Britain as a tourist destination to the Chinese and the cost and complexity of visas for tourists.
We should be much more joined-up. Should there not be a Cabinet committee which joined together the strands of government policy? There are many other deregulation issues—I hope that I have made a contribution to that agenda with my Live Music Act—but we need to make sure that our tourism industry is unshackled by many of the regulations that afflict it.
Lord Bates
My Lords, I, too, congratulate my noble friend Lady Kramer on securing this debate and on the way in which she introduced it. Like her, I find it quite difficult to come back to work after that inspiring speech in Westminster Hall. I feel as though I have been walked up to the mountain top and then need to come back and start inspecting the sewers. However, the sewers in this case are pretty important, because they have to do with jobs, growth and matters of that nature.
I am pleased to be able to follow my noble friend Lord Clement-Jones, who put his finger on something—in fact, Aung San Suu Kyi also mentioned this; namely, how we are perceived internationally. When we berate ourselves for queues at Heathrow, let us remember that they are queues of people wanting to come in, not wanting to get out. Sometimes, we underestimate the attractiveness of this country around the world. When people of the eminence and experience of Sebastian Wood, the UK ambassador to Beijing, call the current strategy on visas self-defeating, we should all take a bit of notice.
When people come to this country to study, they are coming here not to rip us off or to claim benefits but to invest the thick end of £100,000 in the British economy and probably a lot more besides. Including students, who are effectively investors in Britain, in immigration numbers needs to be looked at very carefully, otherwise we will see pressure put on to reduce their number in the face of massive growth. UK universities have supplied some information and research showing that the number of international students will double in the next seven years from 3.7 million to 7 million. That is a huge market and we need to be at the table for it. The UK is home to four of the world’s top 10 universities. As the Government’s advertising campaign tells us, Britain is great, but we cannot say that we are open for business if, when people try to get here, they find that the door is shut.
The noble Lord, Lord Bhattacharyya, mentioned innovation. Let us consider that most of the people who come to this country and to our universities are often very highly skilled graduates, often in science and technology. That same information from UK universities suggested that 40% of teaching in science and technology in UK universities is undertaken by people who come here from overseas. Instead of allowing people two years’ postgraduate work experience to contribute to the UK economy, to set up businesses, to teach, to train and to innovate—which we desperately need—we have ended up changing the law so that we kick them out after three months. It seems crazy. We kick them out and probably send them to the United States, Germany or France, who of course welcome them with open arms. This is a high-class problem, because Britain is attractive. We recognise that there needs to be a public discourse on this. There is no doubt that in the country, and in the heat of battle during elections, immigration is an issue. However, people need to understand that there is a fundamental difference between those people who are coming to this country perhaps not with the best of intentions and those coming to invest and help create wealth and jobs. I very much endorse the remarks made there.
In many ways, that leads into the general comments that I will make. I had a conversation yesterday with an entrepreneur in the north-east called Graham Robb, who has a small business. He said, in a slightly flippant way, that he had taken on four new people over the past month. When I asked him to what he attributed this rapid growth in his business, he said that what was fantastic was that because of the jubilee and the Euro championships, suddenly debt, gloom and doom were off the TV and out of the newspapers, and people were starting to feel good about themselves. The minute that happens, they start to invest and trade. One of the most telling tables in the excellent briefing paper prepared by the House of Lords Library for this debate is the one on business confidence. When asked if they expected business to improve in the next year, 18% said yes, 29% said it would stay the same and 50% said it would get worse. When that is the perception of the people you are relying on to invest and go forward, you realise that you have a problem.
On the other hand, let us look at what engineering and manufacturing are doing. We are seeing some extraordinary performance there, with exports growing quite rapidly—in manufacturing as well, they are up 8%. I know from the north-east of England that we have record exports for the third quarter in a row and there is no sign of that trend abating. It is as if it is only going to gather pace. This is tremendous news. When EEF The Manufacturers’ Organisation was asked what it thinks the outlook is for the next 12 months, 70% of members have a positive outlook and believe they are going to invest in order to take advantage of the good future that is ahead of them. We need to seize on that, along with the other good things that are happening around the economy, and get behind them.
The UK is moving up the world competitiveness league table again. For the first time since 2007, we are now back in the top 10. That is what the world thinks of us and of British manufacturing. It is pretty popular around the world, which is important. If we want, we can tell young people coming out of school that they have no hope and no future, and that the world is going to hell in a handbasket, but that is not what is happening around the world. The Institute of Directors’ latest economic research predicts that the world economy will triple in size during the lifetime of the person leaving school now and that the size of the middle class will expand from 1.8 billion to 5 billion in 2030. It is not all doom and gloom. There is real momentum and real opportunity out there. However, if we are so beset with focusing on our weaknesses rather than actually heralding, championing and exploiting our strengths, such as education and tourism, we cannot take full advantage of it. My conclusion on the growth strategy is that, yes, all the fundamentals are in place. Of course we need to tackle the deficit, keep taxes down, deregulate, introduce and improve skills, and make it easier to set up businesses—all those things are fundamentally important. However, we also need our sales guys to get out there and promote the UK, and make sure for the people at home that when people want to come and invest in the UK, our doors are open and there is a welcome mat there waiting for them.
Baroness Liddell of Coatdyke
My Lords, I too, congratulate the noble Baroness, Lady Kramer, on obtaining this debate. It comes at an opportune time to allow us to explore a number of issues connected with Britain’s economic growth. She was right to draw attention to how many of us have spent most of this afternoon listening to Aung San Suu Kyi. That brings home to us, at the fag end of the parliamentary week, as we are back into humdrum work here in your Lordships’ Chamber, how much she would have valued the opportunity to have the democratic exchanges that take place within this Chamber.
I do not share the noble Baroness’s analysis of the global financial crisis. She seems to have forgotten that in 2010, the coalition Government inherited a situation where we were beginning to move into growth. Two years in, we are into a double-dip recession. However, I will not be hijacked down that route, because I want to take up a number of the issues raised by the noble Lords, Lord Clement-Jones and Lord Bates, in their excellent speeches.
I want to talk about an industry that employs 2.6 million people directly in 200,000 SMEs and contributes £115 billion a year to the UK, almost 9% of our GDP: the tourism industry. As the noble Lord, Lord Clement-Jones, pointed out, it is the third highest earner of foreign currency. It comes just behind chemicals and the financial services industry. One reason why I am interested in tourism—I should point out that I have a registered interest as a non-executive director of VisitBritain—is that I have had a lifelong interest in the regeneration of remote communities.
Tourism can get into the parts of the country that the rest of economic policy cannot reach. The impact of growth in tourism in turning round those economies is considerable. One benefit of tourism is that it can move fast. I saw it very dramatically a decade ago, at the height of foot and mouth disease, when, as the Secretary of State for Scotland, I saw that the rural areas of Scotland, particularly around the borders, were dramatically affected but the rest of Scotland was open for business. The tourism industry, under the excellent leadership at the time of Prince Philip, the Duke of Edinburgh, took the initiative to bring tourism to Britain. As a consequence, a catastrophe for the industry was averted. No other industry can move at that pace. I cannot think of any other industry that can address an economic crisis as rapidly. Too often, government policy has marginalised tourism. I welcome the references to it in the Government’s growth strategy; I just regret that the growth strategy came rather late in the day and has ignored 100 years of economic theory on how to grow yourself out of recession.
DCMS does a very good job of championing tourism, and I pay tribute to this Government, who have seized it more aggressively than other Governments—perhaps out of necessity—but I make my remarks more specifically to the Treasury and, in particular, the Home Office, because I want to take up some of the visa points raised by the noble Lords, Lord Clement-Jones and Lord Bates. We have an industry which is extremely competitive internationally; we remain seventh in the world for visitor numbers and visitor spend. Overseas visitors spend £18 billion a year and contribute £3 billion to the Exchequer. Given the sluggish growth that we have in this country, we should highlight those industries that can bring in spend and Exchequer revenue quickly.
UK net GDP growth has been extremely poor since January 2010, at 1.2%, but international tourism is more than twice that: 3% growth in visits and 8% of growth in spend, according to the ONS. If we are able to continue at that rate of growth up to 2020, tourism’s contribution to GDP is forecast to grow at 3.5%. That means 250,000 new jobs. If an entrepreneur knocked on David Cameron’s door and said, “I can bring you an industry that will create 250,000 new jobs”, David Cameron would snatch his hand off, yet there is a continual process of growth and development in tourism that, if helped, could create 250,000 new jobs, but we put significant barriers to growth in the way. I am tempted to go down the route of air passenger duty and the appalling situation with aviation policy, not least in relation to the slots that are available at Heathrow and the barriers to inbound travel from places like China—but I am not going to go there. Instead, I am going to take up something that the noble Lord, Lord Bates, said about the situation with China.
China is the fastest-growing market for inbound tourism for all of the major tourism economies in the world. In the past decade, we have seen a dramatic increase in the number of inbound tourists who have come from China. Chinese residents spent £72.6 billion on outward travel in 2011 alone. That puts China third in the UNWTO league for expenditure on foreign travel, and it is a 400% increase in a decade. France and Germany are in the top 10 for that spend. Where is Britain? We are down in the 20s. Some of that is down to the issue of slots at Heathrow, but some of it is down to the visa policy that this Government have adopted.
VisitBritain conducted a market research survey of 1,000 Chinese potential tourists. Two-thirds of them said that the visa process was the inhibiting factor in them coming to Britain. Sebastian Wood is not the kind of ambassador who throws his toys out of the pram at regular intervals—I should know; he was my boss at one point. However, he has allegedly drawn attention to this problem. We put obstacle after obstacle in their way. If you want a visa in China, for a start you have to fill in a form in English. Of course, many of us could do that in Mandarin and Cantonese. Secondly, you have to produce original documents such as your marriage certificate, proving your immigration status as well as your financial status and your travel plans, and you do not get them back until the visa is granted. These are important documents; think how twitchy we all feel when such documents are missing. I ask the Government to look imaginatively at how we can deal with this visa problem—America did it.
One of the reasons why France and Germany do so well is that they are Schengen countries. Why can we not give a visa to someone who has complied under the Schengen criteria and allow them to come to Britain when they come to Europe on the Schengen visa? This is common sense, not rocket science. If we can concentrate on making China see Britain as a welcoming place, there is an opportunity for much greater trade and investment.
The noble Lord, Lord Clement-Jones, and indeed the noble Lord, Lord Popat, referred to the fact that we want more investment in Britain and we want to see things tightened up between all the agencies that promote investment in this country. One of our most successful ventures at the moment is that, at long last, the Foreign Office, VisitBritain, UKTI and the British Council are working together. It is about the quality of life here in Britain and what an exciting place it is.
In conclusion, the Olympics are a fantastic showcase opportunity for Britain. We saw the extent of international interest in the Diamond Jubilee. Tourism this year may dip because, ironically, people may think that Britain is full, but this is a chance in a generation to sell British tourism around the world. Let us seize it. It will not cost a lot of money and it will not be complex but keep in mind those jobs, those 200,000 SMEs and the potential of 250,000 new jobs by 2020.
Baroness Sharp of Guildford
My Lords, I, too, thank my noble friend Lady Kramer for introducing so expertly this timely debate. In preparation, I went though a number of the documents that have been issued by BIS over the past couple of years or so. I was struck by the introduction that my right honourable friend the Secretary of State for Business, Innovation and Skills, Vince Cable, made to A Strategy for Sustainable Growth back in 2010. He said:
“The growth we need should be different from the past. Instead of relying on ever increasing household debts financing unaffordable consumption, we should look to greater business investment … We need to position ourselves to prosper through the transition to a greener economy. Our country should make more use of its scientific excellence, so that innovation becomes a motor for long term growth and change”.
In other words—and this was picked up by a number of speakers, notably my noble friend Lady Kramer and the noble Lord, Lord Bates—we need a shift from a consumption-led economy to one led by investment. As my noble friend Lady Kramer has said, there is great hope that we shall see this investment coming from the small and medium-sized enterprises that constitute such a considerable part of our economy. There is real frustration that all the efforts to increase money supply do not seem to reach that sector. We see it in the renewed efforts of the Chancellor in this past week to ensure that that money is targeted for small and medium-sized businesses.
However, as the noble Lord, Lord Bates, said, the problem is also one of confidence. To some extent, one can see that in what is happening at the moment. Britain is locked into what Keynes would have called the “classic liquidity trap”: we are increasing the money supply but it makes no difference. Until confidence among businesses changes—the “animal spirits”, as Keynes called them—we will not see this rising investment that we so badly need.
I find myself worried by what is proposed by the Opposition in terms of a reduction in VAT. It seems that their solution—to reduce the VAT and people will start spending money—is not correct. It just takes us back to an economy which is based on consumption, not on investment. It is vital that we see investment improved.
I will concentrate my remarks on two sectors that Vince Cable mentioned in his introduction: first, the transition to a greener economy and, secondly, making the most of our scientific excellence; on that, I will pick up the whole issue of skills. Mariana Mazzucato, who is now a professor at my former university home of the science policy research unit at the University of Sussex, has pointed out in relation to the eurozone crisis that, in many ways, the message and advice that other European countries ought to be getting is, “Do what the Germans do”, not just in terms of cutting back and austerity but in terms of mirroring how Germany has created its competitiveness. In an article in the Guardian on 17 May she wrote:
“German competitiveness is not due only to its lower unit labour costs (which are not low when welfare benefits are included), but to its strategic investments in research and development, vocational training, state investment banks that create ‘patient’ finance, and its recent emphasis on greening the economy. Similarly, the engineering group Siemens did not win a UK contract for fast green trains because of low wages, but because of its innovation investments, which have made it one of the most competitive companies in the world”.
It is not just in so far as its labour costs are low. It is also because its investment in innovation, and training its staff to use these investments, effectively means that its productivity is far higher than most EU countries, including the UK.
In some respects, one might say that the coalition Government are following this advice precisely. The green investment bank, which was launched last week, is in many respects a state investment bank, aimed at helping firms, particularly small and medium-sized businesses, make the transition into the green economy. This does not just mean photovoltaics and wind energy developments, which have been given so much publicity, but solid investments in better heating systems and insulation. Fifty per cent of the energy consumed in this country is consumed by domestic heating. It remains shaming that the average home in Sweden—a country with a much colder climate than ours—consumes only 25% of the energy used by the average British home. Investments in insulation, draught-proofing and double glazing remain among the best that we can make. They require no long-term planning and development, provide jobs in the hard-hit construction industry and can provide them now, not in three years’ time.
As my noble friend Lady Kramer indicated, we Liberal Democrats have for some time been urging a major programme of housebuilding. In Sweden, new homes use hardly any energy; they are energy-neutral. A major programme of new, affordable homes, built to modern standards, would improve our performance enormously. In the 1960s, when the population was increasing at a similar rate to the present one, the target was to build 300,000 homes a year, many of them in the social housing sector. Today, our target is 170,000 homes over five years—34,000 a year—and last year the number of affordable homes under construction fell to 15,698. The potential is there to use this period of recession to invest in a long-lasting asset that will increase general well-being and the benefits of which should last for a very long time. I can only hope that we will seize this opportunity, for it would appear be a win-win proposition.
I also want to talk about science and innovation. I applaud the ring-fencing of the science budget of £4.6 billion and the extra money that has gone into the research budget in the past 18 months. However, the 2010 spending review slashed capital expenditure in the science sector and, as the Campaign for Science and Engineering has exposed, left the sector as a whole £1.7 billion worse off in cash terms. Spending on science is not just money for research to underpin our science base. It simultaneously trains a cadre of scientists and technicians, who are essential if we as a nation are to pick up and use modern technologies to the full. That is precisely what underpins Siemens and German competitiveness.
I fear that while all eyes have been on undergraduate fees and their impact, we have given no thought to the postgraduate situation. Yet it is the availability of these highly trained and highly skilled workers that attracts high-value-added foreign investment, such as that in the pharmaceutical industry, and which—note the position of Pfizer—will leave us if we do not maintain the training of a large number of highly qualified people.
We may well be ring-fencing science in relation to other public expenditure but we ignore what is happening overseas. Figures for 2009 show that, at 1.8%, the UK spends a smaller proportion of its GDP on R and D than any other G7 nation except Italy, while the government spend of 0.17% is bottom of the G7 league table. Germany, the US and Japan are now up to 3%, while China is fast moving up the league tables, as others have noticed. If we are to meet the aspiration expressed in David Willetts’s speech in January—that Britain should be the best place in the world to do research—we need to increase our spend substantially.
I very much endorse what the noble Lord, Lord Bates, said about the visa issue. We are doing much harm to ourselves with our current visa arrangements, which discourage many postgraduate students from applying to do their work in Britain.
Baroness Valentine
I declare an interest as chief executive of London First, a not-for-profit business membership organisation. I start by adding my congratulations to the noble Baroness, Lady Kramer, on securing today's debate. It is timely, since finding ways of generating and sustaining growth is surely the central priority for the Government.
The Government have already taken some welcome steps. Last week the Chancellor announced further monetary stimulus—or plan A-plus, as some have described it—to support lending by banks to businesses and home owners. He also acknowledged the need to amend the Financial Policy Committee’s objective, so that it now balances the important aim of maintaining financial stability with enabling the banks to contribute to economic growth.
We all want to see the financial sector better regulated. The result will be that our banks are well supervised and stronger, and so more able to support the UK economy. Yet, however welcome these measures, we have to accept that the Government have limited room for manoeuvre. We therefore need to be both innovative in finding measures that can support growth and determined in rooting out policy barriers that stifle it.
Let me start with innovation. We are in a fiscal paradox. A combination of eurozone turmoil and determined action to cut the deficit means that the Government can borrow at very low rates. This is the ideal time to borrow to finance investment to support growth, yet some would argue that the Government can borrow at these low rates only because they are committed to borrowing less. I believe we can turn this contradiction to our benefit, with a twin-track strategy that continues with austerity measures while borrowing for investment in specific, identified, growth-enhancing infrastructure projects, provided that this borrowing and its associated activity are clearly ring-fenced. This approach would not rattle international investors. Rather, the reverse is true; these measures would enhance, rather than undermine, the credibility of the Government’s fiscal policy—and the IMF lent its support to this kind of approach a few weeks ago.
This investment should fall into two categories. The first is in areas where the Government need to finance and fund investment, typically in transport infrastructure. I wholly endorse the comments made by the noble Baroness, Lady Kramer, on the use of tax increment finance in this response. There are many projects across the country whose wider economic benefits have been assessed, and deliver the greatest returns; whose construction would stimulate demand in the short term; and whose operation would support economic growth in the medium and long term. These include the northern hub scheme to bring faster, more frequent rail services to the cities of the north; widening of the A11 in East Anglia; the upgrading and expansion of England’s motorway network; and in London the Tube upgrade programme, Crossrail 2 and new river crossings.
The second is where Government can stimulate new or additional economically productive investment in privately provided infrastructure. For projects with long payback periods, such as in power generation, a relatively small commitment from government could provide the security that would make these projects commercially viable, and thus encourage private-sector finance. This can come in the form of pump-priming from government, long-term pricing commitments, or the removal of an element of risk. Realistically, this is the most likely prospect for developing cost-effective green technologies, for example.
The Government also have a role in encouraging economic regulators to move away from their short-term focus on price. This needs to be balanced with support for building capacity in the network, to meet the growth in demand that is already forecast, as opposed to overseeing a gradual decline and the associated stresses on the system. In this context, it is surely time for regulators to look more favourably on projects that have sat for too long on the drawing board. The recent threat of drought, for example, has brought home to us all the need to invest in the resilience of our water supply. Surely the lowest-hanging piece of fruit is new runway capacity in the south-east, where the private sector is ready to invest if only the Government would let it. I do not want to turn this debate into one on airport policy—the noble Baroness, Lady Kramer, would never forgive me—but I want to reiterate its importance. The UK desperately needs a growth policy which allows us to do business directly with the largest emerging market economies, and that must include direct flights to and from London.
I turn to what I have described as the policy barriers to growth. By this I mean the various ways in which public policy acts as a brake on the private sector investing. As the air capacity issue illustrates, overturning some barriers will require political courage in the face of legitimate and loud opposition—no one should underestimate that challenge—but others can be tackled through politically uncontroversial measures. There are many areas in which there appears to be something of a mismatch between the Government’s declared goals and the policies they have adopted, or the way in which they are implemented. I am sure that some will be raised by colleagues during this debate but as an example I will focus on one critical area—getting into this country to work, study or invest. In so doing, I will continue the theme initiated by the noble Lord, Lord Clement-Jones, and continued by the noble Lord, Lord Bates, and the noble Baroness, Lady Liddell.
The Home Secretary this week criticised businesses that complained about the Government’s immigration caps for “sending a negative message” about Britain. The message that the Government would like to send is that Britain is open for business, but the one being heard by many of those we want to attract is, “Please go somewhere else”. Taking education as an example, a recent survey by the National Union of Students found that 65% of international students would not recommend, or are unsure whether they would recommend, the UK as a place to study as a direct result of government policy. International students could bring income to our universities and acquire an understanding and, I hope, affection for Britain which would stand us well in the future. Our response is to show them the door as soon as they have collected their exam results. Other countries such as Australia encourage them by allowing them to work for a short period after graduation. Abolishing the straightforward post-study work route which allowed non-EU students to work for up to two years after graduation is a penny-wise, pound-foolish move.
In tourism, our cumbersome, expensive and time-consuming visa process costs us substantial potential income. Fewer than 5% of Chinese visitors to Europe come to the UK. Why would they, when they can visit 26 other countries on just one visa, while we make them jump through hoops for one that allows access to the UK only? We need consistency at our borders. For arriving visitors from outside the EU to have to queue for two or three hours at immigration, even if once only, is no way to welcome them or to get repeat business. There is no trade-off between secure borders and the speedy processing of arriving visitors; all that is required is to have enough border force staff on duty in the right places at busy times. In a world of often tough policy choices, this surely is a simple, quick win.
To conclude, at a time when we need the private sector to deliver growth, we need a laser-like focus on the barriers that thwart it, complemented by action to stimulate investment. The Government’s realisation that we need a plan A-plus is welcome; I suggest that we add a few more pluses over the coming months.
Lord Haskel
My Lords, I agree with the noble Baroness, Lady Kramer, and my noble friend Lady Liddell that Aung San Suu Kyi is a hard act to follow. However, I would like to speak about something that she may recognise: namely, confidence. The noble Lord, Lord Bates, spoke about this in his very interesting remarks. The Government have missed out as regards confidence as the threat of a double recession and problems with the euro convinced them that there was no future—economic or political—in austerity alone. Sadly, the Government felt unable to adopt Labour’s five-point plan which comprised deferring or slowing down cutting the deficit, a temporary reduction in VAT and getting more young people into employment and training. In doing so the Government missed the fact that these actions would improve confidence by giving hope for the future. I do not agree with what the noble Baroness, Lady Sharp, said in that respect. It is the Government’s original policy of austerity alone that has contributed to this lack of confidence—a lack of confidence in the real economy, which is where the growth lies.
One reason for this failure is that we have a Government who think largely in terms of the financial sector. Money makes money. But you need the real economy, with goods and services that everyone who has been speaking in this debate has described, to create the money in the first place. This is where the growth will come from. This is where confidence is required. This is where we need to encourage and make positive sentiments, just as much as we need to in the financial markets. Yet this hardly features in the Government’s actions. What we have is a conventional pulling of financial levers—tight fiscal policy, loose monetary policy, and more or less quantitative easing. As the noble Lord, Lord Popat, said, this is not an ordinary crisis. I agree with him; and to help deal with it we all need to take every opportunity to build confidence to support and encourage the real economy.
I agree that Ministers talk about the march of the makers. They talk about the importance of competitiveness. Yes, the Plan for Growth laid out strategic aims, and the noble Baroness, Lady Kramer, told us about them; but when practical opportunities arise to create confidence, the Government do not take them. In fact, they do the opposite.
Let me give you examples that have been raised in your Lordships’ House. The noble Lord, Lord Clement-Jones, spoke about the Olympics. Twice the Government have been asked to take steps to relax the rules that the noble Lord complained about whereby British companies can use the Olympics as a shop window for their products. Twice the response has been what I can only call—with apologies to my noble and learned friends—a lawyer’s response, not a Minister’s response. Sure enough, only last week an article appeared in the Financial Times saying how this had been a blow to confidence because those companies felt they were,
“being left out in the cold”.
The noble Baroness, Lady Kramer, the noble Lord, Lord Popat, and others are urging companies to export. They are right. Indeed, we sit on a committee looking into this. There may be problems with the euro, but business in Europe goes on. Firms want to export to the EU, but are not sure how. Since January 2010, it has been a legal requirement for each member state to have a single point of contact in English on the internet for the purposes of opening up their markets. However, this is not working, and the matter has been raised in your Lordships’ House. It has been raised by the Federation of Small Businesses but nothing has happened. The result has been that people say, “Why should I bother?”. Confidence therefore ebbs away.
The Government’s most recent low-interest lending scheme is designed to spur the banks to new lending. I agree on this occasion with the noble Baroness, Lady Sharp, that clearly the money from quantitative easing and previous schemes is staying in the financial sector. It is not reaching the real economy. Project Merlin is not working and there is a great deal of wringing of hands about this. What do the Government do? Why, they offer more of the same with promises that this time it will work. The noble Baroness, Lady Valentine, described this. Is this going to build up confidence and encourage the real economy to produce the growth that we all so desperately need? It is beginning to look as if this is a Government who never lose an opportunity to miss an opportunity to give confidence to the real economy. These are examples that we have discussed in your Lordships’ House, but there are many more examples elsewhere.
As well as taking these opportunities to build confidence, how else can the Government temper austerity with encouragement and build confidence? Certainly, infrastructure projects, about which many noble Lords have spoken, must help. We are all aware of capacity restraints, shortages and things that need replacing. However, to build confidence, it is also essential to understand what is happening in British business and industry, and then we can build on our strengths.
There are very few large British-owned industrial companies any more, and they have been shedding workers. What we do have is a large number of clever, lively, innovative and enterprising companies that specialise in selling their products, ideas and services to narrow markets—markets which very often they themselves have discovered and shaped, as my noble friend Lord Bhattacharyya described, and which often turn out to be large because we live in an age of global markets. All the data show that these companies are accounting for a larger and larger share of our economy, and they have been the ones taking on people. For example, Formula 1 may be a very narrow area of activity but the spin-off businesses, such as those producing rain-sensing wipers or the sensors that tell the pit about the driver’s physiology, have become worldwide businesses. The growing trend of mass customisation exactly suits this kind of business. Additive manufacturing is becoming a destructive technology in the same way that music databases on the internet are now closing down record shops. We are good at this sort of thing.
Nowadays, these companies often work in groups and clusters, supporting each other, to reduce risk and share knowledge. Business has become much more permeable, especially in the digital world which the noble Lord, Lord Clement-Jones, described. If the Government want to bring about growth and competitiveness early, these are the kinds of businesses they have to support and encourage. The Government can create confidence by championing their products, services and way of business, not by neglecting them. Ministers do not have to take it from me. The Government are well aware of what is going on. Each government department has a scientific adviser who must know about these products and services. Foresight, the Government’s own horizon-scanning service, has and is studying all this and is well aware of what is going on, as is the Technology Strategy Board.
As my noble friend Lord Bhattacharyya explained, our skills and education system need radical improvement, as does our infrastructure and financial system. We have to get 1 million people aged under 24 back into work, and, yes, our industrial base is too narrow, but that takes time. That is for tomorrow and the next day, but today we have to show a sense of urgency and deal with this unusual crisis. We have to find growth by showing support and encouragement, and by building confidence where our strengths lie; then tomorrow we can deal with the rest.
Lord Shipley
My Lords, I, too, thank my noble friend Lady Kramer for initiating this debate. I think it is true that the UK is weathering the debt crisis better than many countries, and we seem to understand why we have so much debt and what needs to be done to reduce it. Our problem is that, in addressing the public deficit and personal debt, growth has stalled. As the noble Lord, Lord Haskel, pointed out, confidence is poor, so people hold cash to protect themselves against instability and uncertainty. As they do that, banks repair balance sheets, businesses hold cash amounting to some £700 billion and individuals reduce their borrowing and try to save more. That is now leading to too much cash doing too little and simply earning low returns in interest. Meanwhile, unemployment is high—particularly youth unemployment—borrowing can be hard even for good business proposals and we continue to build too few homes.
As my noble friend Lady Kramer pointed out, the Government have given leadership through their growth initiatives and in their recent boost last week to high-street lending. We all need to respond to restore confidence and thereby generate jobs. Can more of those with money to spare be persuaded to spend some of it on services, employing, for example, a tradesperson who may be having a tough time getting work? That could make a difference and prevent someone having to cease trading and ending up on state benefits. Can we deliver an urgent boost in housing? We are not building enough new homes; the construction industry has declined by more than 4% in the latest period. There is an acute shortage of most kinds of properties but particularly of affordable, social housing, as the number of people renting rises. I can see no alternative to a major government injection of cash to provide the necessary gap finance to get homes under construction. I hope that the Government will urgently consider addressing this issue because tackling it will drive growth and employment as well as build confidence and homes.
There is also an important point about governance in that I believe there is a direct relationship between local empowerment and local growth. In England, government offices and regional development agencies have disappeared to be replaced by local authorities and local enterprise partnerships. These new structures are bedding in and I am confident that they will build on the successes of the RDAs.
Crucial to this further success is tax-increment financing, which permits borrowing against future business rate income. I agree with the noble Baronesses, Lady Kramer and Lady Valentine, about the importance of tax-increment financing—TIF—in generating growth, because England's major urban areas are suffering from a lack of demand which impacts directly on national performance. Spending and borrowing are being driven down by low confidence, restricting business growth. The recent and welcome moves to increase credit need to be backed by further measures to stimulate demand. Access to borrowing needs to be matched by the ability and confidence to repay that borrowing.
Infrastructure investment creates jobs, confidence and a high-ratio return. With low availability of public finance, TIF is widely recognised as a critical tool in delivering such investment and stimulus. Although the Government have created the means for TIF to operate through the Local Government Finance Bill, they have limited its potential effectiveness with their proposed resets, which make it difficult for local authorities to secure the level of return they need and will in turn reduce their ability to invest. The Government need to be more confident about local government’s ability to manage risk and make robust decisions.
By comparison, Scotland passed a Bill under devolved powers in December 2010 to allow six TIF schemes to run. Scotland looked first at which projects had real merit and then decided what to fund. Although some Scottish schemes are not yet fully resolved, that was a sound principle—to find the growth opportunities and then to allocate the funds. Some £500 million of public finance is now committed, attracting £2.5 billion from the private sector. I feel that England can learn from Scotland on this as it seems to have found a sensible way of proceeding. Many potential TIF proposals in England seek to rebalance the economy by stimulating developing industries such as biotech and high-tech manufacturing, resulting in long-term growth in high-productivity sectors which benefit the national economy. Longer-term pay-back periods may often be necessary to deliver that.
As I understand it, the borrowing by local authorities for enterprise zones announced a little while ago may also be treated more favourably than TIF and will not count against the public expenditure control framework, whereas TIF will. That implies a choice of accounting treatment, which I find confusing. I also wonder whether it would be welcomed by CIPFA.
The Association of British Chambers of Commerce, the British Property Federation, London First, the Centre for Cities, Core Cities, the GLA, the LGA, London Councils, the British Council of Shopping Centres and many individual private sector companies have all called for a much bolder approach to TIF because it is a mechanism that businesses think will help them grow. I very much hope that, during the passage of the Local Government Finance Bill, the Government will be able to respond to the potential that TIF projects offer.
That brings me to transport. I have never understood why the UK does not have a strategic transport plan. We seem to lack an airports plan, a road strategy and a plan for rail. That is not a new problem—it has been the case for too many years. The result is that too much infrastructure investment has been short term in its thinking, with a quick payback period in economic terms. It is not designed to rebalance the UK economy in the longer term. We should remember that private sector investment follows government decisions on infrastructure investment. Thus, HS2, which I support, will define for the private sector, because of its route, where firms should think of investing. It really matters what the Government say and where they think public investment should be placed.
To rebalance the UK economy requires a boldness and confidence about the long-term of transport infrastructure investment benefits to the economy; hence the need for dualling the A1 in Northumberland, improving rolling stock on regional rail services and delivering congestion relief through roads investment rather than having the Highways Agency simply put barriers in the way of development and growth by objecting to developments proposed on the grounds of future road capacity, as happens far too often.
Several parts of the UK suffer from low levels of transport infrastructure investment and their potential for growth is more limited as a result. The Government have the opportunity, two years in, to do something about that and to move from short-term decision-making to a clear long-term strategy which informs their investment and that of the private sector.
Lord Paul
My Lords, I, too, commend the noble Baroness, Lady Kramer, for securing and initiating this timely debate. I declare an interest as the chairman of Caparo Group, an industrial manufacturing company. While we appreciate the efforts made by the Government to formulate a strategy for growth, the manufacturing industry has seen little progress despite much talk. Many of those involved in UK manufacturing sometimes wonder whether the Government have a strategy for growth, given their enthusiasm for austerity. It is a tribute to the continuing efforts of the workforce and management of British manufacturing that so much has been achieved in the face of economic adversity—our car industry is a shining example. Yet, my overall sense is that this cornerstone of our economy and our future has been neglected in Britain for far too long.
That must now change if we are to reassure those involved in the manufacturing industry of their worth and ensure that our most able engineering graduates are not tempted away by the bright lights of the City and the financial markets. Manufacturing is still a solid activity providing stable jobs and long-term careers that can embrace the latest thinking in design and technology. Furthermore, it is vital that a country such as Britain has a strong manufacturing sector for strategic as well as economic reasons. We therefore need to keep manufacturers busy.
Two of the largest sectors of demand for UK manufactured products are the public sector and exports, particularly to the EU. The Government expect private sector export-led growth to offset public sector austerity and spearhead a recovery. Yet what has happened? Manufacturers that have worked for years to achieve world-class competitive standards for the UK now face not only a dramatically weakened eurozone, but a strong pound. Profitable exports to continental Europe are thin on the ground. By adopting policies that will increase real demand for UK manufactured products, the Government can enable UK manufacturing to play a full part in leading an economic recovery.
The cuts in the new infrastructure projects for roads, schools and hospitals of recent years cannot be quickly reversed. Recent moves to restart many of these projects, although welcome, will take too long in the planning process to be of much help in getting the economy growing again in the near term. Instead, the Government should focus on the backlog of infrastructure repairs and maintenance. This would also engage the severely depressed construction sector in a streamlined and accelerated tendering process to rapidly generate jobs with manufacturers and contractors.
A keystone of recent government strategy has been quantitative easing by the Bank of England. While it may have aided money supply problems—some people of course have questioned this—it has backfired on British business. Quantitative easing has helped to artificially depress UK government gilt yields—the rate which the Government have to pay to borrow money—and they are now at their lowest level for more than 300 years.
That may seem like a good thing, so why is it a problem for business? Indeed, it is a good thing for the wider economy. However, the problem is that the same rate is also used to calculate today’s cost of future pension promises. The lower the gilt yield, the bigger the liability that is calculated. Extremely depressed gilt rates have hugely increased pension scheme liabilities and the deficits of many UK companies. According to the Government’s Pension Protection Fund, more than 85% of the 6,432 private sector pension schemes in the Pension Protection Fund index were in deficit at the end of May to the tune of £312 billion. Many of those schemes are supported by manufacturers.
However, only a year ago, less than 65% of those schemes were in deficit, with a much more modest total of £25 billion. Despite assets increasing by £41 billion, liabilities have risen by a massive £329 billion over the year. This has placed UK companies under increasing pressure to fund artificial deficits at the expense of real investment in growing their business. If business cannot invest and thrive, who will be left to pay the pensions? With the way in which pension liabilities are increasing, many manufacturers cannot help wondering whether their business is a pension fund with a manufacturing company bolted on instead of the other way around—almost the story of the tail wagging the dog.
Surely that cannot have been the intended effect of the quantitative easing strategy. In any event, let us take a longer-term view on evaluation of pension liabilities that matches the longer-term nature of the pension commitment. This would allow businesses the stability to build robust plans to meet their pension obligations to the benefit of all, rather than the highly volatile and disruptive approach that currently prevails and has been a competitive drag on the UK economy for far too long.
I would, however, like to congratulate the Chancellor and the Governor of the Bank of England on their recent initiative to provide funding for business through further support for bank lending. As the Government know well, small and medium-sized businesses have suffered for far too long from a lack of adequate sources of capital, which I am sure has been a contributory factor to the decline in manufacturing in this country over the past 40 years. We have of course seen initiatives in the past which, despite good intentions, failed to help those who were targeted. This time it will succeed only if the Government ensure that industry receives the funding it needs. If the current policies and programmes fail, this country will continue to lose its place in the global economic hierarchy. That is why I urge the Government to take a more realistic approach to economic growth and the sectors that can contribute to it.
Lord Stoneham of Droxford
My Lords, the essential task and purpose of the coalition is to reduce the government deficit and restore growth. The nature of our partisan politics exaggerates the differences between the Government and the Opposition. Divisions also lead us to overlook what the real dividing lines and problems are. The biggest problem is that the big drivers of the economy between 2000 and 2009 were private borrowing and public spending. Tim Morgan in a recent publication The Quest for Change and Renewal shows that growth in construction, real estate and finance sectors was 42% and growth in health, education and public administration was 28% while the rest of the economy was languishing at -5%, and the real output from manufacturing was plunging by 26% to remain at 12% of GDP.
This suggests that a huge proportion of the economy is currently incapable of growth due to the overdependence on sectors relying on private borrowing and public spending. It is not surprising that we are having difficulties finding a way out. When combined with the huge explosion of private household debt, which individuals are now rebalancing as precautionary motives take hold, it is not surprising that growth remains illusory. There are no short-term fixes.
I want to address my remarks to the importance of the housing sector to restoring growth, and I declare my interest as chair of Housing21. Housing is a great driver of growth. One new house adds at least one new job in construction and two-and-a-half to three jobs with all the associated purchases in the economy. Twenty per cent of the output of housing is sourced through manufacturing. One of the great disappointments of the previous Government is that, despite the boom they created, only 233,000 houses were being built at the top of the boom, and the number has now fallen to below 100,000.
Housing is very cyclical. As demand rises, it soon reaches supply constraints, not just land, but the capacity of the industry to build quickly and cheaply enough. We need to improve capacity. This is a long-term, not short-term, task. A recession and its economic difficulties are often the best time to achieve change in business and to prepare businesses for the future. No good will come if we simply cut back capacity by reducing cost in the short term. Housing has a huge impact on the wider economy and our social objectives. The noble Lord, Lord Best, my friend and colleague in the housing sector, always uses the example of building 100,000 retirement homes. This not only enables 150,000 people to move to more suitable accommodation, but assists 350,000 people to move to the larger accommodation that is released by those moves, and there are associated benefits in savings on health and social spending and in family morale, not to ignore the economic spending as new homes are set up.
There is growing awareness of the importance of housing in the recovery from the previous equivalent economic catastrophe between 1929 and 1932. Recently this has been highlighted in a CentreForum publication by Nick Crafts and in a speech earlier this week by Vince Cable. Those of us brought up on Keynesian teaching all assumed that recovery at that time came from New Deal economics and rearmament. No it did not. They had a devaluation of 25%, which helped, as now. They followed an orthodox fiscal policy of getting the deficit down. Debt at that time was 180% of GDP, and the servicing costs of that debt were 8% of GDP against 3% now. They followed a policy of cheap money. Interest rates fell from 10% to 1%. The only real difference in the 1930s was that then there was no banking crisis and no credit crunch. In addition, there was a network of mutual building societies and locally facing banks ready to fund mortgages at low interest rates. The Government remained in fiscal balance from 1929 throughout the 1930s and from 1932 the economy started to grow by 3% per annum until the end of the decade, and one of the drivers of that was the doubling of housing development to 300,000 houses a year using cheap money.
What can the Government learn from this and what can they do? There are three lessons and five actions. Institutions must start to lend again so that housing borrowers can take advantage of low rates. Confidence has to be rebuilt. A continuing expectation of low rates is essential to the private sector but also important to housing associations and councils. The role of the state, both nationally and locally, must be in partnership with the private sector to incentivise and indeed leverage recovery using the strengths of its own balance sheets without necessarily adding to the deficit.
Turning to the actions required, housing strategy must encompass all forms of housing and not be preoccupied with owner-occupation, as important as that is. There is a huge need for more private rented, affordable and social housing. Partnership activity between the sectors lowers costs and risks and enables flexibility at the margins when houses that cannot be sold can be rented or used for social housing. Keeping housing in silos encourages social apartheid and raises the cost of housing provision. Mixed developments help cross-subsidisation of social housing.
The Government should consider using quantitative easing measures to directly benefit housing development rather than simply improving the balance sheets of banks. A 1% easing of interest rates could lower the cost of financing housing by 20% to 25%, which is very significant over a 30-year repayment period. It could also reduce the need for subsidising social housing directly. Housing associations are already forsaking banks for bond issues to finance their developments. Examining new sources of funding could facilitate more development.
Not enough progress has been made, despite promises that it was going to be, in sourcing pension funds and institutions looking for suitable long-term investment providing real returns, particularly in private rented housing. Certainty on rent policy and even the development of government guarantees would be better than direct government investment. A whole series of government schemes already provides very significant funding: the Growing Places Fund for infrastructure; Get Britain Building for development finance; freeing up public sector land initiatives; the New Homes Bonus. We have to push on these but we must be prepared to consider that we might have to spend £1 billion to produce 40,000 to 50,000 homes if all else fails.
Finally, as I said in the housing strategy debate I initiated earlier this year, the Government need to be ambitious. There needs to be a housing tsar in government to galvanise the private, public and voluntary sectors to drive these policies and to raise our sights from building 100,000 homes this year—if we are lucky—to over 200,000 in 2015.
I always thought it was that great liberal Conservative Harold Macmillan who broke the 300,000 homes ceiling in the 1950s. Actually it was done in the 1930s and, if I dare to say so, it was probably one of the reasons why that one-nation Conservative Stanley Baldwin formed the Government after 1935, despite the great crash in 1929.
Baroness Royall of Blaisdon
My Lords, I, too, am grateful to the noble Baroness, Lady Kramer, for allowing us to debate the vital issue of growth this afternoon. There is a link between growth and democracy, about which Aung Sang Suu Kyi spoke so powerfully this afternoon. Democracy is frail and it is best nourished by participation in our democratic system, but that requires people to have hope and confidence in the future, including their own economic future. Where hope is lost, where confidence in our system is undermined, fear and extremism take hold. I know that all noble Lords in the Chamber this afternoon will strive to ensure that that does not happen.
The noble Baroness has always given great importance to growth. Indeed, in her maiden speech as Member for Richmond Park, she spoke powerfully about the need,
“to reconcile the importance of environment and sustainability with economic development, prosperity and growth”.—[Official Report, Commons, 23/5/05; col. 473.]
From these Benches, despite what has been said this afternoon, it would appear difficult to reconcile this view with being a member of a coalition Government who are responsible for an economy that has not grown in the year and half since the spending review. One might say that it is a case of “Kramer vs. Kramer”.
From outside government, it is rather difficult to detect any co-ordinated growth strategy. To outside observers, including the CBI, there was little or nothing in the Queen’s Speech. It represents a waste of a parliamentary Session when industry and businesses large and small are crying out for a strategy which will return our country to a healthy rate of economic growth as soon as possible. Despite what has been said, I remind noble Lords that when my Government left power after a tumultuous global financial crisis, George Osborne inherited an economy that was growing. Unemployment was falling. Borrowing was below expectations—£20 billion lower in our last year of government than forecast. Yes, the deficit did, and does, have to be dealt with, but not with such speed. It is thanks to wrong decisions that focused on austerity rather than growth that we have ended up in a double-dip recession.
Growth is the necessary condition for meeting the aspirations of our citizens, providing employment as well as hope, and for funding the public services on which we all rely. Rather than pursing a growth strategy, this coalition Government have chosen fear over hope. They have focused on a policy of austerity that is not working here and is not working in the rest of Europe. In the very short time since his election, President Hollande has brought about a change in discussions in the European Union so that even the Prime Minister is now talking with his European colleagues, although he is not translating words into action. These Benches certainly agreed with President Hollande when he recently said that growth was a condition to meet deficit targets and that it was important to have policies that stimulate growth. I hope that at the European summit next week his influence will be strong.
It is true that there is growth in some sectors—for example, the automotive industry, which is thriving—and I celebrate that, especially when they invest in skills, training and R&D. They are providing sustainable growth in which their profits rise as a result of investment and innovation, not through speculation. My noble friend Lord Bhattacharyya was right to focus on manufacturing and to say that so much more could be done if there were an integrated approach. My party believes that there is a role for intelligent government intervention to stimulate greater innovation, maintain infrastructure and ensure that R&D is strengthened.
The success of major industries is vital also for the SMEs which make up their supply chain. I am told that 99.7% of all businesses in the EU are SMEs, which seems a staggering figure. Our own 4.5 million SMEs employ about 14 million people, accounting for almost half of private sector turnover. SMEs are the foundations of our economy, our community and our country, but, at the moment, those foundations must feel a bit shaky. Some are in danger of crumbling, desperate for an injection of confidence and hope, perhaps crying out for an industrial strategy which would deliver for SMEs as well as for large enterprises. They are worried that UK plc is getting left behind in the global race for the future. It is no surprise that, according to the SME Finance Monitor, the main barrier to future borrowing by SMEs is the economic climate, with 43% of would-be seekers saying that the effect of the economic climate will hold them back from seeking the finance to expand and grow.
I met representatives from the Genesis Initiative just yesterday and was bowled over by the expertise, experience and ideas around the table—these are huge strengths that must be exploited—but I was also acutely conscious of frustrations about missed opportunities. They need a supportive Government with vision and a long-term growth strategy that takes into account the long-term needs of industry and businesses large and small.
The noble Lord, Lord Popat, mentioned red tape, but no one yesterday mentioned it. I was interested to read in the Economist that a recent GE Capital study found that four of the top 10 challenges facing German and French firms are related to regulation, compared with just one in Britain—that is not to say that it does not have to be dealt with, but it is an interesting finding. The same study says that the main challenge for British firms is getting workers with the right skills. It also mentions the high cost of housing when companies try to attract skilled workers. On skills, I would ask the Minister how he thinks that Mr Gove's curriculum changes, which have a total focus on academic subjects rather than any focus on vocational subjects, are going to help. They will force children into a narrow education when we should be nurturing young entrepreneurial flair.
Many noble Lords, especially Liberal Democrats, have suggested that the Government are not putting enough money into building new homes. The noble Lord, Lord Storey, had some interesting ideas. As he mentioned, every house built represents two and a half years of work for one person, yet jobs in our construction sector are still contracting. An excellent IPPR report said today that Britain is in the midst of the biggest housing crisis in a generation. Taking action now to deal with the problem, which afflicts the lives of millions, would indeed stimulate growth. I agree that my own Government did not build enough houses, but there are certainly not enough houses being built at the moment.
I also ask the Minister why more is not being done in these difficult times to enable SMEs to take advantage of the bidding for contracts inside and outside the European Union. German, French and Italian SMEs have much more exposure to markets outside the EU than their British counterparts and I suspect that they have more government support.
We also have the benefit of the Commonwealth, whose potential we should assist SMEs in exploiting. The green investment bank is a fine initiative, with which I agree, but why is there no real discussion or action relating to a national infrastructure bank? Like many noble Lords, I wonder why more is not being done to promote investment in infrastructure, which is a key component for successful business and industry, and is a motor for growth; not to mention the employment that it provides. Unemployment remains a scourge in this country and the wider world, which is why the G20 summit was so important. However, the leadership needed to provide a global plan for jobs and growth appears to have been lacking.
I welcome the fall in unemployment figures announced this week, but even the FT is today talking of future increases, along with the chambers of commerce. Many of the people who are now taking part-time jobs are doing so because they could not get a full-time job. Of course, the increase in the number of manufacturing jobs is good news, but so much more needs to be done. Unemployment for 2.6 million people, including over 1 million young people, and fear of unemployment for millions more means that not only do people not pay tax and government borrowings consequently rise but consumers do not have the confidence to spend. The few are still spending; the many are not. I was horrified to learn that two new food banks open every week and that we have children who are in such poverty that nearly half of teachers have taken food in for their pupils. I am not critical of food banks—far from it, they fulfil a desperate need—but I am ashamed that in the 21st century there is a need for food banks in our country.
The Government clearly have a responsibility to implement policies that stimulate growth in the short term. As my noble friend Lord Wood of Anfield said in an earlier debate,
“we need to move on beyond the rather stale polarity of laissez-faire on the one hand and the demonisation of old-style corporatist industrial policy on the other, to work out not whether but how a Government can provide secure foundations for long-term growth”.—[Official Report, 31/3/11; col. 1359.]
That is why Sir George Cox, as noble Lords will know, has agreed to carry out an independent review, commissioned by my right honourable friend Ed Miliband, into the impact of short-termism on business. Businesses need to be able to take a more long-term view if we are to develop an economy that works for working people and competes with countries where longer-term planning is taken for granted. Sir George is issuing a call for evidence and, in view of the expertise in this Chamber, I very much hope that noble Lords will respond.
Having said that, what we need is action now. Many noble Lords have mentioned the fact that last week the Governor of the Bank of England, understanding the need for urgent action to sustain our economy, announced the funding-for-lending initiative. Of course, this is both welcome and necessary but will only work if the demand is there and small businesses have the confidence in our economy and the growth of our economy to borrow. At the moment, I do not think that confidence is there.
Confidence demands action and unless action is taken that enables businesses to grow and stimulate the economy, thereby giving people hope and jobs, we will not succeed in getting the deficit down. For the present and future well-being of our country, it is imperative to restore confidence and growth but at the same time to ensure that the proceeds of growth are shared by the many not the few. That is the challenge. To date, the coalition—the Liberal Democrats as well as the Conservatives—has failed to meet that challenge and it is therefore failing the hard-working people of this country.
Lord De Mauley
My Lords, I start by thanking my noble friend Lady Kramer for initiating this debate and noble Lords on all sides for participating and for some important, helpful and often creative ideas. Even if I do not have time to touch on all those ideas specifically this evening, I will, I assure noble Lords, take all of them back to the respective government departments.
As underlined in my noble friend’s opening speech, the Government’s overriding priority is to return the United Kingdom to strong, sustainable and balanced growth. There are three parts to our strategy to achieve that. The first two are focused on dealing with the challenges we face now: sustained deficit reduction to deal with the record deficit we inherited; and monetary activism to provide immediate stimulus to the economy through credit easing, quantitative easing and the recently announced liquidity and funding for new bank lending. The third part of our strategy focuses on dealing with the challenges of the future: promoting long-term growth by accelerating supply-side reforms that will enable United Kingdom businesses to develop and grow.
I will deal with each of those in turn, along with the points that have been raised. First, I turn to the immediate challenges. As I think no one would dispute, we are living in difficult economic times. We are recovering from the biggest financial and debt crisis of our lifetimes. If one thing is clear, it is that we cannot borrow our way out of a debt crisis. The actions we have taken to reduce the deficit and rebuild the economy have secured stability and positioned our country as a safe haven in an international debt storm, with interest rates near record lows, benefiting families, businesses and the taxpayer.
Our fiscal plan, supported by the IMF and the OECD, has helped us maintain our AAA credit rating and lowered interest rates to record lows, making business loans and family mortgages cheaper. Of course, as the noble Lord, Lord Paul, said, the eurozone crisis remains a challenge. As we have said before, Britain cannot cut itself off from what happens elsewhere. Problems in the euro area—our biggest trading partner—affect us too, but there are still encouraging signs: 630,000 private sector jobs have been created, more than outstripping public sector losses; manufacturing output, rightly referred to by the noble Lord, Lord Bhattacharyya, is up by more than 3 per cent; and exports outside the EU are up by nearly a quarter since this Government came to office in 2010.
Of course, we acknowledge that there is a long way to go. Building for the future, our Plan for Growth set out a wide-ranging, radical programme of economic reforms to help build a stronger, more balanced economy in the medium term. We have already made significant progress towards our four ambitions.
The first is to create the most competitive tax system in the G20: cutting corporation tax to 24% in April this year, and to 22% by April 2014; committing to lower the top rate of tax; and committing to make tax easier for small unincorporated businesses by introducing a new cash basis for calculating tax.
The second is to make the UK the best place in Europe to start, finance and grow a business. There has been £3 billion saved through deregulation; we have introduced the national loan guarantee scheme, with further support for credit to follow as the Chancellor and the governor announced last week; and we have increased the generosity of incentives for investment in early-stage businesses.
The third is to encourage investment and exports as a route to a more balanced economy—£1 billion has been invested in infrastructure to reduce congestion on the roads, for example—and setting an ambition to more than double UK exports to £1 trillion by 2020.
The fourth is to create a more educated workforce that is the most flexible in Europe. We created more than 450,000 new apprenticeships last year. We will continue to work closely with business to implement our reforms.
I turn to specific questions from noble Lords. My noble friends Lady Kramer, Lord Shipley and Lord Stoneham, among others, asked about housing. Each of my noble friends stressed the importance of housing to the Government’s growth strategy, and they are right. Over the past decade, housing construction, repairs and maintenance have accounted for an average of 3% of GDP. As noble Lords will be aware, the Government published our housing strategy last November. This included introducing the NewBuy mortgage indemnity scheme; launching a new £400 million Get Britain Building investment fund, which was subsequently increased to £550 million; and reinvigorating the right to buy by increasing the maximum discounts to £75,000. My noble friends urged us to go further, perhaps using guarantees, and I am grateful for their views. We have said that the Government are looking at further ways to use the principle of guarantees to boost the credit for housing and infrastructure, and that work is ongoing. We will set out our plans in due course.
My noble friends Lady Kramer and Lord Shipley and the noble Baroness, Lady Valentine, raised the matter of tax increment financing and made a number of specific points. As my noble friend Lady Kramer explained, from April 2013 all local authorities will be able to borrow against future business rates revenues, partly or wholly to fund the provision of infrastructure. That in turn should lead to an increase in business rates, which normally would be taken into account when resetting local authorities’ tariffs and top-ups. However, to allow long-term planning, the Government have set an aspiration to allow 10 years before that reset for TIF. While I accept that that may not be long enough to allow local authorities to finance big-ticket projects, it is another tool that local authorities can use to promote growth in their area and could kick-start many small projects that are, as we well know, ready to go.
My noble friend also mentioned TIF 2, which was the announcement in the Budget that up to £150 million will be available in 2013-14 for large-scale TIF projects in core cities. Bids from core cities are now being assessed. We appreciate that the limit of £150 million means that not all TIF 2 projects will be able to go ahead, but TIF 2 schemes come at a cost to the Government because we have to count the cost of the additional spending that the new borrowing by local authorities supports. As a result, with our continued priority of deficit reduction, the Government have to limit the amount of funding available for TIF 2 schemes at this time. However, I will ensure that the noble Lord’s comments are passed to the Treasury.
My noble friend Lady Kramer touched on the importance of a social investment strategy. She called for the Government to develop one, and I am pleased to say that the Treasury is already undertaking an internal review of the financial barriers to social enterprise. This will conclude by the autumn. The Cabinet Office is also looking at the legal and regulatory barriers to social enterprise through the red tape challenge. We are very much alive to these issues.
My noble friends Lady Kramer and Lord Popat talked about the banking sector. My noble friend Lord Popat argued that the Government should be encouraging the creation of new banks. We have seen a number of new entrants into the current-account market in recent years, including Metro Bank, and I agree with him that it is essential that the regulatory regime facilitates new entrants wherever possible. The Government are of course also supportive of ensuring that the divestments of branches by Lloyds results in as strong a challenger bank as possible. We have engaged with the European Commission and with Lloyds itself on that point.
My noble friend Lord Popat also talked about smaller lenders. He might be interested in the Government’s support for community development finance institutions. For example, £30 million of regional growth fund money has been used to establish a wholesale fund that will provide extra capital for CDFIs to lend on to businesses and individuals. I know that my noble friend Lady Kramer is well aware of the importance of CDFIs. Like my noble friend Lord Popat, she raised the advantages of local banking models focused on building relationships with customers. I very much agree with her that banks need strong relationships with their customer businesses, and it is encouraging to see the success of banks such as Handelsbanken, which focused on its relationships with businesses. More widely, I am encouraged by the work that the major high-street banks have done through the BBA’s business finance task force to build relationships with businesses—for example, through a new appeals process and support for mentoring for small businesses. I am pleased that my noble friend acknowledged the schemes announced by the Chancellor and the governor last week. Those follow the national land guarantee scheme that we have introduced, and measures such as expanding the enterprise finance guarantee and setting up the £1.2 billion business finance partnership to encourage non-bank lending. The Government remain focused on the need to help businesses obtain credit.
My noble friend Lord Popat also raised his concern about the planning system. I certainly agree with him about its importance. Indeed, the Government have made this issue a priority in our growth strategy. Already, we have published the national planning policy framework, which is now in effect. This focuses 1,000 pages of policy guidance into around 50, and includes a powerful presumption in favour of sustainable development. This will remain a focus for the Government because the planning system had simply become too complicated. I hope that the chances we are making can unlock the kinds of investments that my noble friend mentioned, which have in the past been stopped by planning rules getting in the way.
My noble friends Lord Popat and Lord Bates also raised the vitally important matter of exports, a subject which a number of other noble Lords also touched on. There are, as my noble friend said, some encouraging signs, with exports to countries outside the EU up by nearly 25% since May 2010. In terms of the key emerging markets which my noble friend Lord Popat mentioned, and in particular the value of UK goods, exports to India grew by 11.9% over the past year, and to China by 15.8%. As a result, China and India were the destination of 5% of UK goods exports in 2011, twice as large a share as five years earlier.
I agree, however, that the Government have to stay focused on this, including on the diplomatic support which our companies need. Indeed, my noble friend Lord Sassoon is not here responding to the debate today partly because he is doing exactly what my noble friend Lord Bates exhorted us to do—he is meeting with my right honourable friend the Prime Minister and my noble friend Lord Green to talk about how the Government can best target high-value export opportunities and inward investment into infrastructure, a matter to which my noble friend Lord Popat also referred.
The noble Lord, Lord Bhattacharyya, raised the matter of an industrial strategy. I agree with him not only about the dangers of picking winners but that we need to think about the long term. We are developing an industrial strategy to give businesses, investors and the public more clarity about the long-term direction of the economy. We are responding to what industry is calling for, looking at how we can set out a vision for where the UK’s strategic capabilities should lie and how we will support them.
My noble friend Lord Clement-Jones raised a number of points, and I welcome his recognition of the role of tourism and the creative industries in promoting growth. On his specific points, he asked about businesses being banned from declaring that they have acted as a supplier for the Olympics, a matter to which the noble Lord, Lord Haskel, also referred. I agree that it seems, to say the least, a little strange, so we are looking at redrawing the terms of these arrangements. We will make an announcement in due course.
My noble friend also talked knowledgably about skills in the creative industries and suggested merging the Creative Skillset sector skills council and the Creative and Cultural Skills council. I understand that there have been discussions about this, but that it was decided that it was not the right time to take it forward. I will, however, ensure that his views are noted. He also asked about overseas promotion, and I welcome his positive comments on UKTI’s work. UKTI has a network of advisers working on this, working closely with DCMS and other organisations.
Finally, my noble friend asked about the work of the Creative Industries Council on access to finance. I am not yet in a position to tell him what was in the report presented last week but I assure him that it will be looked at closely. I welcome his interest in these sectors and assure him that the Government share it.
My noble friends Lord Clement-Jones and Lord Bates specifically raised the matter of foreign students. We need to bring migration down to sustainable levels. The Government are committed to achieving net migration in the tens of thousands. However, we recognise the economic benefits of overseas students and the substantial export earnings that they create for the UK, as well as the importance of the long-term relationships that they can create. We welcome legitimate students but we must crack down, and we are, on bogus colleges and those who abuse the student visa route. The new system ensures that only high-quality, genuine students can come to the UK to study with legitimate education providers, which, I am sure, is what noble Lords want.
In related comments, the noble Baroness, Lady Liddell, and my noble friend Lord Clement-Jones, spoke thoughtfully about the importance of tourism—with which I strongly agree. Of course, we have enormous opportunities to capitalise on the Olympics this year. I should perhaps mention VisitBritain’s £100 million campaign to attract international visitors, with matching funding from the private sector. Added to that is the Great Britain image campaign, with funding of more than £22 million. We estimate that nearly 90 million people will see these advertisements at least five times. Put together, VisitBritain is running the largest tourism marketing campaign in our history.
My noble friend Lord Bates and the noble Baronesses, Lady Liddell and Lady Valentine, referred to Chinese visitor visas and the recent letter from Her Majesty’s ambassador, Sebastian Wood. Obviously, I would never welcome the apparent leaking of such a letter but it at least shows noble Lords that the issue is being looked at seriously by senior Ministers. I noted the suggestion of the noble Baroness, Lady Liddell, about allowing access to Chinese visitors with a Schengen visa. I will certainly pass that on and make sure that it is considered as part of this work.
The noble Baroness, Lady Valentine, touched on the important issue of airport capacity. The Government are committed to maintaining the UK’s aviation hub status. The aviation policy framework is due to be published shortly and will set out the Government’s strategy to ensure that aviation contributes to economic growth within environmental constraints. The Department for Transport plans to publish a call for evidence on maintaining our hub status this summer. This will give all stakeholders the opportunity to comment in more detail. I am sure that the noble Baroness and London First will put forward their views.
The noble Lord, Lord Paul, spoke about, among other things, the effect of low interest rates on companies’ pension liabilities. It was an interesting point and one that I will look into. However, one must weigh this concern against the very real benefits to those same businesses from the effect of low interest rates on the cost of their funds, to which my noble friend Lord Stoneham, among others, referred.
The noble Baroness, Lady Royall, spoke about research and development, which is extremely important. I am not sure that she asked a specific question but the Government launched their innovation and research strategy for growth in December 2011. It sets out how the Government will support innovation and research in the UK, where our investment can add value, how we will achieve this and how we can leverage significant public and private investment to drive sustainable growth.
There were a lot of questions to which it is impossible to do justice in the time allowed. However, I will ensure that any that I have not been able to answer are addressed in writing. I hope that I have demonstrated that the Government are tackling the current economic challenges head-on. Continued deficit reduction and monetary activism are vital to rebalance the economy and achieve strong, sustainable and balanced growth. Alongside dealing with our immediate challenges, the Government have a plan for growth, which I have outlined today. These issues are vital for the UK economy; noble Lords made that point forcefully today. Again, I thank my noble friend Lady Kramer for bringing this matter to your Lordships’ attention and all noble Lords who have participated.
Baroness Kramer
My Lords, I will just very briefly thank the Minister for his commitment to take back many of these issues to the relevant parts of government and for giving us an indication that in quite a number of areas the Government are already thinking along the same lines as your Lordships. It is nice to come to the end of a debate with a positive conclusion coming from it.
I also very much thank all noble Lords who participated and brought real thought, knowledge and understanding to what we all agree is one of the most important issues facing us here today. I would say to the noble Baroness on the Labour Benches that we have perhaps a slightly different perspective on the issues around deficit reduction and the strategy that she outlined sounded a bit like a bubble and bust strategy, which would worry me indeed. It is easy to raise confidence, but then when it is destroyed again the damage tends to be deeper than the confidence initially created. But we can set apart partisan differences because most of the debate was so extremely constructive and reflected the real strength, knowledge and public interest motive that mark out the Members of this House, and I thank everyone who shared their thoughts today.