Growth Strategy

Tuesday 21st January 2020 Westminster Hall

09:30

[John Redwood (Wokingham) (Con)]

I beg to move,

That this House has considered the growth strategy for the UK.

It is a pleasure to serve under your chairmanship, Mr Hollobone. A most welcome change has occurred in economic policy since the advent of the new Prime Minister. We are now told that the aim of economic policy is to promote the greater prosperity of the many in the United Kingdom by means of promoting faster economic growth. The Prime Minister often adds “opportunity” to his justified enthusiasm for growth and greater prosperity.

I welcome that fundamental change, because that is what I have wanted our policy to achieve in recent years, at a time when my party and the general economic establishment thought that priority had to be given to a single, central aim of economic policy—the reduction of state debt as a percentage of GDP. The change of aim in economic policy to the monitoring of state debt occurred first under the Labour Government in 2009, when state debt got out of control. Before the Labour Government left office, they accepted the need to get state debt down, particularly the running deficit, from very high levels, and made some cuts. The coalition Government changed some of those cuts, but went on with that strategy, because they rightly agreed with the outgoing Labour Government that the deficit was far too high and unsustainable.

I supported that policy in those days, but in 2015-16, when the deficit was under better control, I became more concerned about the tension between the central aim of getting the deficit down and the need to promote growth, which, in the longer term, is the best way of getting the deficit down, because it generates more activity and more tax revenue. Therefore, I started campaigning for an economic policy based on the promotion of prosperity. I am delighted that we now have a Government with that as their central aim.

Our economic policy under the previous guidance, from 2009 to 2015, stabilised our position and reduced the state deficit, necessarily, by a substantial amount, without preventing all growth. However, that policy ushered in a period of lower growth than we had experienced prior to the banking crash, primarily because of the way the deficit was tamed. At the time, it was said that the deficit was tamed by big cuts in public spending, but it was mainly tamed by a massive increase in the amount of tax revenue collected from the domestic economy.

It is true that there were individual cuts and individual departmental budgets took a hit, some of which were very contentious on both sides of the House, particularly among the Opposition. However, public spending went up overall in cash terms, and arguably went up slightly in real terms over that period. The main challenge of getting the deficit down was achieved through a series of tax-rate rises and collecting extra tax revenue out of the modest growth that the economy achieved, without any relief of that tax burden. Part of the reason that we had slower growth is that we became a relatively higher tax economy than we had been before.

We have seen an experiment conducted on both sides of the Atlantic since 2016, when the Americans opted for eye-catching and dramatic tax cuts, both cutting the rates companies must pay and putting money into the pocket of every person with a working wage, with a particular emphasis on getting people on the lower end of the income spectrum to have more money to spend. That has proved extremely successful: the American economy has been growing at more than 2% for most of the time since the tax cuts kicked in, whereas the European side, sticking with the Maastricht requirements, deficit reduction requirements and relatively high taxes, has been struggling to grow at 1%.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the right hon. Gentleman on securing the debate. He is making a powerful argument for growth across the UK. On the issue of differential employment and income rates, does he agree that if this is to be successful, we must see economic growth and higher wage levels spread more evenly across the UK, so that regions with a much lower wage economy start to see more wealth and employment at the higher end?

[John Redwood]

Indeed, and I welcome the emphasis placed on that by the Prime Minister and Ministers. I hope that we can give them some more ideas on how that can become realistic policy. I am just setting the scene: there has been a big change in the aim of policy, which I warmly welcome. I suggest to the Minister and others that lower taxes might be an important way of trying to develop that aim. The experiment conducted on both sides of the Atlantic seems to suggest that countries with the ambition and desire to cut taxes on working incomes and businesses will experience more growth and success. We have seen a lot of money repatriated to the United States of America by big businesses, which now find the tax rates acceptable and therefore do not require the same legal structures—I am sure they were behaving legally—to keep the money offshore or not to pay taxes for the time being in the United States.

The United Kingdom Government have, even during difficult times, decided on lower corporation tax rates. I think we have a competitive corporation tax structure. Our lack of tax competitiveness rests in the treatment of individuals and income, and employment costs, rather than corporation tax, where we have done a good job relative to continental Europe. We are benefiting from that. It was good to hear it announced this week that the UK is now the third preferred destination for technology investment after only the United States and China—two economies much larger than our own—and that we are attracting more investment than the combined totals of France and Germany, so we must be getting something right in our approach to business investment and the taxation of business profits.

The Government have already set out a new fiscal framework, which I welcome, because they understand that it is not sufficient just to set a new aim for policy—they need a fiscal framework to deliver it. They have directly addressed the issue of state debt, saying that they will not spend money on revenue matters that is not covered by taxation—a prudent control on the situation—but they have also said that there is nothing wrong with the budget deficit expanding from just over 1% to 3%, if the purpose is for good investment, especially given the very low rates that the Government now have to pay to borrow money.

I think that is a sensible compromise that gives us a bit of scope in the public sector. I trust it will also leave us scope to lower tax rates, which is important for getting extra growth from the private sector, where much of the growth will come from. Today, the Government’s 10-year borrowing rate—if they needed to borrow more money from the market—is 0.63%. One would assume that the public sector can find investment projects and get a return considerably above 0.63%, so I fully endorse what they are trying to do.

I hope we can accept the new policy aims and the new fiscal framework, which give us flexibility, and think about what additional policies the Government might need to adopt to boost that growth rate. I have been predicting for some time that we would have a marked slowdown in the United Kingdom, as a result of the fiscal tightening that we have experienced until now and the monetary tightening that the Bank of England has implemented. It has been very curious that the Bank of England has detached itself from the world’s central banks over this recent very marked slowdown in world activity. The slowdown was led by an actual recession in manufacturing in most parts of the world; the centre of the storm has been in the motor industry, but it has also extended more widely into the consumer and service areas.

The rest of the world’s central banks are busily fighting that, and so we have seen a succession of interest rate cuts in countries with interest rates that could still be cut. We have also seen a resumption of quantitative easing programmes in the European Union, after it perhaps rather foolishly abandoned them at the end of the previous year; we have seen continuous large quantitative easing programmes in Japan; and in China, we have seen a big reduction in the required capital of banks, so that those banks can lend more to the private sector and expand China’s economy, which has also slowed quite markedly.

I suggest to the Treasury Front-Bench team that they look very carefully at the centre of the downturn that we have seen worldwide and mirrored here in the United Kingdom, and in particular at the motor industry. The motor industry was hit by higher taxes on consumers in China; it was hit by changed emission regulations on the continent of Europe; it was hit in the United Kingdom by increases in vehicle excise duty in the 2017 Budget; and it was also held back by Bank of England guidance warning banks against lending too much money for car purchases, in a market where practically everybody buys a car on credit, rather than their having the cash to pay the considerable sums that cars cost these days. So there was a very predictable slowing of the UK car market, in parallel with the slowing going on elsewhere.

That was compounded by the fact that the UK had been incredibly successful at building a very large diesel car industry, and in particular a diesel car engine-making industry in the United Kingdom, just in time for the EU and the UK to become very hostile to diesels and send out the message that people really should not buy diesels, and that in future diesels may even be taxed or regulated off the road. There could also be new controls on diesels, with the Government, in common with the EU and other Governments, wanting people to buy electric cars before they felt confident enough in electric cars, or before the prices of electric cars come down to a more realistic level for them to be a feasible opportunity for people. So we have seen in the UK, as in China and in Europe, a big decline in the sale of traditional diesels, and there has not been an off-set in sufficient numbers by the new vehicles that are being introduced.

So the Government need to look at the car industry and recognise that the issues affecting it are a combination of taxation, availability of credit, and messages about what kind of car people are allowed to buy and drive. The industry needs to be given some time to complete the transition that Governments want, and it is not yet in a state where it can sell enough electric cars to immediately replace the lost capacity that it is experiencing on diesels.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I thank my right hon. Friend for securing this very important and wide-ranging debate. He mentioned the car industry, which is largely based in the north-east of England, but it based itself there because clear incentives for it to do so were provided by the Government at the time. Does he agree that if we are going to rebalance this economy and level it up, we will need some incentives for businesses to start up in or relocate to some of these areas?

[John Redwood]

Yes, I am happy for there to be attractive reasons why people should go to the parts of the economy that have been less heavily invested in and that are less pressurised. However, with cars the issue is demand; there is not enough demand for the very good cars that the industry currently makes. The Government want to change the kind of cars that people buy, but it will take time for Britain, or anywhere else for that matter, to be able to produce the millions of electric cars that the Government want us to buy, at a price and to a specification that people like.

So, this is a top-down revolution and the public are not yet fully engaged in it in the way that the Government would like them to be. When polled, the public say that electric cars are a very good idea. However, when they are then asked, “Well, when are you buying your electric car?”, the answer is, “Well, not yet. Not me. I want a better subsidy on the car, I want a lower price, I want a higher range”—whatever it is.

There are still issues about engaging the public, which is why we are getting this industrial dislocation. China has experienced exactly the same thing and one would have thought that China would have continuous growth in cars, because it is coming from a much lower level of car ownership and individual income. However, even in China car volume is down, because of the regulatory changes and the dislocation involved in going from traditional product to electric product.

In addition, the Minister and his colleagues should look at the issue of property. Property is a very important part of the UK economy. It is often an asset base for people to borrow against in order to develop their business, and it is often the main way in which individuals hold their personal wealth. By buying a house on a mortgage and gradually paying the mortgage off, property often becomes people’s principal asset, which gives them some wealth and financial stability.

However, we have a property market in the UK that has been damaged by the very high stamp duties that were introduced under the previous Government, and the Government should look at that issue very carefully. I do not think that the Government are even maximising the revenues from stamp duties, and it might not be a bad idea for them to ask, “What are the rates that would maximise the revenues?” At the higher price levels in property, transactions have been very badly affected; indeed, they have been massively reduced by the very high rates at the top end of the market. So, the Treasury constantly has to revise down its forecasts of how much revenue it collects from stamp duty.

A more free-flowing property market would be a very good thing, because it would create all sorts of other work for people who are in the refurbishment and removals business, and above all it would allow people to fit their property needs more closely to the property that they have. A lot of potential switching in the market is being frustrated: some people have houses too big for them but they do not fancy paying the stamp duty on the trade-down property, and other people would like a bigger property, but the stamp duty would be just such a big addition to the higher price that they would have to pay for that property.

[Peter Grant (Glenrothes) (SNP)]

I congratulate the right hon. Gentleman on securing the first Westminster Hall debate of the new Session. Does he agree that there has been a major problem in the United Kingdom for many decades, which is that people—for one reason or another—have been encouraged to treat the house that they live in not as a place to live but as a speculative investment, on which they expect to make money? Also, does he accept that many people have been severely stung, because they thought that they would be able to stretch for a mortgage that they could not afford, in order to sell the house for more money in 10 years’ time? If the value of the house does not increase in 10 years’ time, they have a problem. That situation caused the crash in 2007-08 and it has caused a number of minor crashes since then. Does he also agree that more needs to be done to make sure that people who only have the money that they are investing in their house are protected against the possibility of losing their house and everything else when the market crashes?

[John Redwood]

Most people buy a house because they want somewhere to live that is theirs, and that they can then do up and change in the way they see fit, subject to planning. But yes, of course, it is also a way of holding wealth, and I repeat what I said: for many people it becomes their largest single asset. I do not think that is a bad thing. I do not think that people are treating their main property as a trading counter; it is where they wish to live, and they will only move when they want a different house, mainly for living purposes. People would only be able to buy property speculatively if the property was their second or third house, and not many people are in the fortunate position of having such wealth.

There is no absolute protection against house prices going down; they do from time to time, as the hon. Member for Glenrothes (Peter Grant) pointed out. However, if someone’s aim is to live in a house long term, and if they have taken out an affordable mortgage, temporary fluctuations in house prices are not life-threatening or wealth-threatening to any worrying extent, and they will just live through the period when house prices dip because there has been a recession, or whatever.

Fortunately, we do not seem to be looking at such a situation in the immediate future, and it is very important that we have a growth strategy, so that the slowdown in the economy that we have experienced in recent months is turned around quickly and does not become something worse, which could have negative consequences in the way that the hon. Gentleman talked about.

So my No.1 message to the Government is not to underestimate the damage that clumsy taxes can do, and they may even end up costing the Treasury, as stamp duty has done, because it is not collecting as much as it should. That is probably the case with vehicle excise duty as well, because of the volume impact on new cars, which relates to a whole series of factors; it does not just relate to the vehicle excise duty, but that was another complication in the situation.

As the Minister has this particular responsibility, I urge him to look again at IR35. We want a very flexible economy in which people can choose flexible employment, rather than have it forced on them. We have had a relatively flexible small business sector, but it is being damaged by the top-down imposition of the IR35 rules. I hear all sorts of stories from across the country of people having to stop their contracting business or losing contracts because the big companies that might employ them are worried they might get dragged into a retrospective tax increase in employer and employee national insurance. That is damaging the small contracting sector, and I urge the Government not to carry on doing that when we want to encourage more self-employment and allow self-employed people to go on to build bigger businesses.

One of the Office for National Statistics figures I saw recently, which I found fascinating, was that in London there are more than 1,500 businesses per 10,000 people, whereas in the lower income parts of the country there are half that number. There is a huge gap between the volume of enterprise in London, which is the richest part of the country in terms of average incomes, and much of the rest of the country, where incomes could be higher. It is not easy to break into why there are so many more businesses in London. In part, it is because people are better off and have more spending money—demand is important in setting up a business—but it is also to do with the general business environment and the concentration of people, talent, enterprise and spending power that we see in the capital. We need to do something similar in other parts of the country. Building more businesses is crucial, and IR35 is getting in the way of doing that.

Some 4.5 million people in the country who work for themselves do not have any employees, and they are afraid of taking on an extra employee because of the implications, whether for regulation, tax or otherwise, or because they think it will be too difficult to manage. We need to look at that step up in building a business, when someone goes from just working for themselves to having an employee or two. It is important that we make that step as easy as possible, because if another million self-employed people decided that they wanted a single employee, that would be transformational. That would obviously create a lot of extra demand in the labour market.

We need to look at taxes on employment and the complications of employment. Anything that the Government can do to reduce the tax on employment is a very good idea. We cannot collect tax revenue just by taxing things we do not like, but where we have a choice, it is better to tax things we do not like rather than things we do like. All parties in the House like the ideas of well-paid jobs and of more work, so we need to work away in Government to see how we can reduce the burden of taxes on work such as the apprentice levy, the national insurance levy on both the employee and the employer and other concealed taxes on work.

We also need to look at taxes on entrepreneurship. A larger population of people who have great ideas, who can change markets and who can persuade others that they have something people might want to buy is vital to the process of creating a more prosperous United Kingdom. We need to ensure that the offer on capital gains tax in particular is a fair one. People who have built a business over the years should not feel that they will be taxed again on it all, because they have been taxed on the activity in the business. Capital gains has to be a fair regime, and I urge the Government to keep the enterprise allowance arrangements so that entrepreneurs can keep a lot of the benefits from building their business.

It is said that our productivity performance in recent years has been disappointing and that that is a puzzle. I do not quite understand why it is a puzzle; it is exactly what we would expect. We have had a major reduction in North sea oil output. The way the figures are calculated means that it is one of the most productive sectors, because labour productivity is based on the amount of revenue or value-added generated by an individual, and an individual in the oil industry produces a huge amount of revenue due to the windfall element in the oil price. We had a very big squeeze on many of the activities in the City that were apparently profitable before 2008. Those activities flattered the productivity figures, but some of the profits turned out not to be genuine, and a lot of them have been squeezed out. Again, a high-earning, apparently highly productive part of the economy has gone through a big change, and we have lost that.

We have been a successful economy—this is a strength—in creating lots of new jobs, but a lot of them are relatively low paid so they do not score very well under productivity scoring. If we compare our productivity with that for continental countries with unemployment rates two or three times as high as ours, their productivity is higher, because people we are employing on low pay here would be unemployed there, and the unemployed do not count in the productivity figures—they are just ignored as if they do not exist.

[Kevin Hollinrake]

My right hon. Friend is making some very good points, but is productivity not principally a regional problem? The gross value added per capita in London is about £50,000 a year. In the north-east, the north-west and Yorkshire, it is about £20,000 a year. Is that not where we have to level up, because that would drive productivity right across the UK?

[John Redwood]

I agree, and one of the things I hope will happen as we pursue policies that spread prosperity more widely is that some of the higher value-added activities that people come to London for will be carried out in other cities around the country. If somebody established a manufacturing business in a great northern city, it would be good if they had their media advice, public relations, legal advice, accountancy advice, consultancy advice and all the rest of it from firms in northern cities that specialised in those things, rather than the current model, where many of them come to London to take advantage of the excellent business and professional services available there.

In attracting more industry to the northern and western cities and towns, we need also to be conscious of encouraging the cluster of service businesses around them that can add value in other ways. In modern manufacturing, a lot of the traditional work is now done by machines and robots, so the individual plant does not attract a large number of jobs; the jobs are in all the other things—marketing, PR, services, legal, accountancy, invoicing and so forth—and we want to make sure that enough of those jobs come with the factory to the local area. That is where we have to see what other policies we need to put in place to spread such jobs more widely around the country.

The productivity puzzle is also caused by the public sector not innovating enough and not raising its productivity. It has been noticeable under Labour and Conservative Governments and the coalition that public sector productivity has stalled. That is disappointing, and we have a large public sector, so we need to get the Government to direct their attention to that, because the one bit of the productivity puzzle they can actually manage is the public sector, and Ministers have various powers to encourage and promote innovation.

I was interested to hear the Secretary of State for Health and Social Care talking last night about the role of innovation, new ideas and smaller businesses in the health service. There is huge scope for better partnership between innovative smaller and medium-sized companies and the public sector. The current contracting rules do not work well for many small businesses. It is difficult, because often the public sector wants a large solution for an awful lot of locations, and the small business can only handle so much and cannot scale up quickly enough. I hope that the Government will have another look at how the best of the private sector can be harnessed for the productivity increase we need from better innovation and better technology in big areas of the public services.

We must make sure that we see the technological revolution as a potential friend and not a potential threat. I was quite surprised this morning when reading the background papers for Davos—a meeting that I was not invited to and did not want to go to—to see how negative they were about technology. It was seen as a threat to be tamed and slowed down; as something that was going to destroy jobs and be very disruptive. It talked about the endless dislocations, whereas the public see much of technology as their friend. Why does America have huge success with trillion-dollar companies? Some of them are, and some of them seem to be trillion-dollar companies. Where have Facebook, Apple, Amazon and Netflix got their strength from? They have got it because they have public support. It is all very well for a politician to say, “They are wrong about this and wrong about that, and we need to regulate them and stop them doing this”, but it is a bottom-up revolution that we should not ignore. Those are things that people want. They have completely changed how people lead their lives.

People now go out to restaurants together and sit there with their iPods or smartphones not talking to each other. I am not sure that that is a great development for human relationships, but it shows that the technology has been transformative for people’s lives. They have much more instant information and much more ability to communicate to set out their views. It is not just what the BBC tells us; it is what we push back through social media these days, which some of us welcome. So we have a new model, and there is a danger that the Davos elite see it as a threat to their control over everybody. They are getting out of touch with what the public want. We should broadly welcome the technological revolution. I understand that a lot of our constituents like its services and products. We need to learn to live with it and co-operate with it in a sensible way.

As we come out of the EU, there are huge opportunities for us. Contrary to the misleading comments that some people have made, I have always taken the view that we can be better off as we leave the EU, not worse off. I have never understood why people are so negative about it all. I will simply end with a few obvious points about how we can be better off in certain areas. We can have a much bigger fishing industry. I hope it will be a prime task this year to create the conditions for that. We certainly do not want to keep on sacrificing our fish to over-exploitation by continental trawlers. We want to land more of our own fish while having a good conservation policy for stocks as a total, and that should then lead to onshore activities for fish processing and food manufacturers based on the excellent fish stock that we have available.

There are huge opportunities in farming. A lot of people would like to buy more local produce for all sorts of reasons. We like to support local farms. We are conscious of wanting to cut down food miles. We often like the flavours and benefits of locally produced food. We can do more of that, and there are ways in which, as we come out of the common agricultural policy, we could aim to get back to the levels of self-sufficiency in food that we enjoyed before our period in the common agricultural policy lowered it quite considerably.

We should also concentrate on our defence industries. We are making a commitment to spend more each year on defence so that we are more secure, but we are not truly secure unless we can make all the weapons and defence goods that we need in time of war. We must not be dependent on other people’s technology that we cannot access independently, or on imports over perilous sea lanes in times of conflict. We need to be able to scale up, and I urge all those involved in defence to see a big opportunity for us to make more of our own defence equipment. We should certainly make sure that we have control so that if the need ever arose, which I hope it does not, we would be able to scale up quickly without major issues.

I have gone on for rather a long time and I know that colleagues wish to debate these matters, so I will leave my other ideas for another time, but my conclusions are that we should not underestimate the damage that high tax rates do; that we should not underestimate the ability to generate more revenue, if we are brave on tax rates, by getting them down; and that we should pay particular attention to the big ticket items—homes and cars—that have been damaged by a variety of negative forces in recent years. I say a big thank you for the change in fiscal strategy. I hope that the Bank of England will join the party in wanting to promote growth as well, because that would make a considerable difference. It has been going in the wrong direction for some time, unfortunately. Let us make sure that all the obvious opportunities from Brexit, particularly in sectors that have been under strong EU control, are grasped warmly because they would give us some early wins.

[Mr Philip Hollobone (in the Chair)]

The debate will last until 11 o’clock, and I am obliged to call the Front-Bench speakers at no later than 10.27. The guideline limits are 10 minutes for the Scottish National party, 10 minutes for Her Majesty’s Opposition and 10 minutes for the Minister. Sir John Redwood has two or three minutes to sum up the debate at the end, but until 10.27 we are in Back-Bench time. Three Members wish to speak. I will not impose a limit, but the guideline is about seven minutes each so that everyone gets to speak.

10:05

[Jim Shannon (Strangford) (DUP)]

I congratulate the right hon. Member for Wokingham (John Redwood) on securing the debate. It is always good to speak in Westminster Hall and it is good to be back at the start of a new season, so to speak.

We have all heard and been a part of predictions about the growth of this country in a post-Brexit world, and we are quickly approaching the date at which things stop being theory and become a reality. Back in November ’17, the Government announced their investment for growth strategy. To be fair, Government strategy on the economy has been strong and positive and has brought results, as we must acknowledge, but the press release stated:

“With the aim of making the UK the world’s most innovative nation by 2030, the government has committed to investing a further £725 million over the next 3 years in the Industrial Strategy Challenge Fund (ISCF) to respond to some of the greatest global challenges and the opportunities faced by the UK”—

the United Kingdom of Great Britain and Northern Ireland. It goes on:

“This will include £170 million to transform our construction sector and help create affordable places to live and work that are safer, healthier and use less energy, and up to £210 million to improve early diagnosis of illnesses and develop precision medicine for patients across the UK.”

In my constituency the construction sector is important to providing jobs and some of the money needed to boost the economy. We are now two years into the Government’s strategy, which is an interesting stage to look at growth over the past two years and to acknowledge it. In the interests of fairness, I must say that there were always impediments to high levels of growth—they stemmed from indecision and the near collapse of faith in our ability in this House over the past two years. The previous Parliament must collectively acknowledge that the to-ing and fro-ing and almost toxic atmosphere in this place was not conducive to presenting to the world that we were in an ideal place to be invested in and worked with. The House has been a hot place over the past two years, unlike this Hall today, where it is almost Baltic, Mr Hollobone. We might have our meetings outside—it might be warmer. I believe it was warmer when I walked here this morning at seven o’clock.

Conservative policy has been positive. It has reduced unemployment and created jobs—definitely in Northern Ireland. I am very pleased to know that we are back in business in the Northern Ireland Assembly and that the Department of Enterprise, Trade and Industry will have that task again. Our levels of employment are similar to those in the south-east of England, which is very positive.

Such a long period of stagnation is unprecedented for the working poor, whose average real weekly earnings are no higher than they were before 2008 and 2009. We saw a large rise in food bank use as well, which has been very apparent in my constituency, where unemployment is much lower than it was when I first came to this House. But the policy has worked. In 2019 wage growth picked up and inflation came down. As a result, real average wages are growing at a healthier rate again, and we must welcome and encourage that.

However, when people do not have the money to spend locally, the local businesses know it and feel it. This is not for debate now, but there is pressure on the high street and in rural country towns such as Newtownards, which is central to my constituency, where we have seen shop vacancies come up that were not there three or four years ago. I have spoken to the Minister, who came over last year, and we have some ideas about how to go forward.

Where do we go from here? I know that the Minister will agree with the five foundations of economic growth, and will endorse, support and encourage them. The first is ideas—research, development and innovation, which are critical to a manufacturing strategy and a strategy for growth across the United Kingdom. Partnerships that enable the growth of research and development include the medical innovations of Queen’s University, with new drugs that can address diseases such as diabetes, cancer and strokes.

The second foundation is people—that is, skills and education. We cannot innovate without training people to a sufficient level of skill. The third is infrastructure. Not one week goes by in this House in which do we not ask a question about broadband, which is almost the key to all other potential jobs. In my constituency, small and medium-sized businesses and people who work from home need access to broadband. Infrastructure also includes energy and transport.

The fourth foundation is the business environment, and support for specific sectors and SMEs. The fifth foundation is places, and local industrial strategies. In Northern Ireland, councils now have more responsibility for creating some jobs, and we want to ensure that they can continue to do that.

As the old adage goes, we have to spend money to make money. We need to regard the new Parliament as a time to invest in our industries, and to show the world that the turmoil is over and that the time to invest is now. Northern Ireland is known globally as a capital of cyber-security, with many international firms basing their teams there due to our competitive rates, good connectivity and, importantly, staffing pool of highly trained young people and admin staff. That is down to a specific strategy and policy. We have marketed ourselves well in that industry.

We have so much more to offer, as does the United Kingdom of Great Britain and Northern Ireland as a whole. Although the foundations are ideas, people, infrastructure, business environment and places, we must ensure that our cornerstone is the absolute assurance that this country is on the rise once more. I always say that we are better together, with all four regions working as one. Confidence will come across to the world only when we have it in ourselves and in our abilities. That must start here and now with investment, and sizeable investment at that.

10:12

[Amanda Solloway (Derby North) (Con)]

I congratulate my right hon. Friend the Member for Wokingham (John Redwood) on introducing this important debate. May I add that it is absolutely freezing in here, and I am very cold?

One of the most important duties of any caring Government is to grow the economy. The question of how a Government should tend to and nurture the economy has been tackled by politicians of all stripes and colours, and answered in many ways, arguably to varying degrees of success. Fundamentally, people’s lives—whether they can support their families, get on the housing ladder, or enjoy some of the nicer things in life—rest largely on the Government’s safe stewardship of the economy. Governments have a responsibility to protect and promote the livelihoods of their citizens.

We should all be really proud of the Government’s record on growth. Since the crash of 2008-09, when the economy collapsed by 4.2%, the Government have managed to grow the economy every single year. That said, we cannot rest on our laurels. There is a lot more that we need to do. Libraries could be filled with writings on the north-south divide. In 2012, The Economist said, rightly or wrongly, that the divide was so broad that the north and the south were starting to resemble different countries. Growth continues to be stronger in the south. London recorded a 1.1% annual rise in output per person to £54,700 in 2018, increasing the per capita gap with the poorest region, the north-east, where growth was only 0.4% to £23,600 per head, according to data from the Office for National Statistics.

Less well documented, however, is the increasing gap between the east and the west. Across the midlands and the north, the growth of the west has been twice as fast as that of the east since the 2008 financial crisis. Do not get me wrong: London and the south, as well as cities such as Manchester, are assets to the country and we should be really proud of them. However, regardless of where we live in these isles, we should all share the fruits of economic growth.

To address the problem, we must not bring those places down, but bring areas such as the east midlands up with them. The Government are not blind to the problem: the midlands engine for growth, which we must ensure happens, and the northern powerhouse show that the Government are listening, and are determined to address the issue. The 2020s offer a unique opportunity to rethink how we can foster growth in our regions.

I could list a range of issues that we could talk about, including investing in transport, investing in our high streets, which I know we are doing, and supporting leadership in SMEs, which I am incredibly passionate about. However, I am conscious of time, and I know that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) would like to speak, so I will limit myself to one topic: free ports.

As I am sure we all know, free ports are areas that are exempt from normal customs and procedural rules that are enforced by the Government. They aim to encourage businesses to locate and grow there, bringing growth, jobs and investment to local communities. I am glad that the Prime Minister will introduce free ports as we start our new relationships with trading partners across the globe. I would love one to be introduced in the east midlands, which already has the key ingredients to justify one: a wealth of manufacturing, the means to store goods, and the access to reach international markets easily, building on East Midlands airport’s cargo capability.

Proposals are being explored for a free port that might incorporate both East Midlands airport and the neighbouring East Midlands Gateway, plus the site of the Ratcliffe-on-Soar power station, just down the road from where I live, which will be decommissioned by 2025. A free port would position the east midlands as a viable and exciting proposition for businesses that need to import components for assembly before exporting assembled goods to overseas markets, while not being subject to excessive tariffs.

[John Redwood]

My hon. Friend might like to think about adding an enterprise zone to the free port. Obviously the free port allows people to import and export, but the enterprise zone allows people to sell to the domestic market as well.

[Amanda Solloway]

I thank my right hon. Friend. That is an excellent idea, which I will certainly look into.

Of course, as the MP for Derby North, I would call for an east midlands free port. However, I believe that they have the potential to unlock and boost all corners of our country, and will go far to reduce some of the current imbalances. It is important that regardless of where people live they are able to go as far as their abilities can take them. I believe that the Government’s free port plans will go a long way to achieving that.

10:17

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak in the debate; I congratulate my right hon. Friend the Member for Wokingham (John Redwood) on introducing it.

I will start with a modern-day parable from a book called “The 7 Habits of Highly Effective People”. A man is walking through a wood and comes across a lumberjack who is trying to saw down a tree and not getting very far. He walks up to the lumberjack, taps him on the shoulder and says, “Excuse me. Your saw is blunt. You’d be better off stopping and sharpening it.” The lumberjack says, “No, no—don’t bother me. I’m sawing down the tree.” He tries again: “Excuse me. Just sharpen your saw and you’ll cut that tree down much more quickly.” The lumberjack says, “I haven’t got time to sharpen the saw.”

That parable has stood me in good stead in my business. I draw the House’s attention to my entry in the Register of Members’ Financial Interests, as I am still in business today. The most expensive and the most vital resource of any business is the people who work in it. It is important always to ensure that they are not working with worn-out tools, and that they are effective and as productive as possible.

The key to the UK growth strategy has to be productivity. I do not disagree with my right hon. Friend: it is a simple issue to solve. However, it will require significant investment, both from the public sector and, crucially, from the private sector. Public sector investment alone will simply not do it.

The reality is that across the north and the midlands we have been working with worn-out tools for too long. According to Andy Haldane, the chief economist at the Bank of England, of the six factors that drive prosperity and productivity the No. 1 factor is connectivity. Large swathes of the country, particularly the north and the midlands, but virtually all regions outside London and the south-east, are very poorly connected. That is because we have underspent in those areas for too long. I know that our excellent Minister will say that the Government are now investing equal amounts in the north as in other parts of the country. That is true to some extent, in terms of central investment. However, other regions, particularly London and the south-east, are very good at aggregating different forms of investment, including private sector and local authority spending. If we add all that up, for every £1 that is spent on infrastructure per capita in the north, about £3 is spent in London and the south-east. That is why those regions are phenomenally productive and therefore phenomenally prosperous. When I talk about more public sector investment, it is not about a grievance that we in the north or the midlands have not had our fair share; it is about sound economics.

I will quote a few leading economists, beginning with Lord O’Neill, a former cities Minister who was also the chief economist at Goldman Sachs at one point. He was an ardent remainer, but said that being in or out of the EU was

“not the most important thing”;

the most important thing was

“our productivity performance and our geographic inequality”.

Andy Haldane highlighted in a recent speech exactly the same figures as my hon. Friend the Member for Derby North (Amanda Solloway): the gap in average incomes between the richest and poorest regions is now larger than it has been at any time since the early 20th century. Amazingly, as my hon. Friend said, the prosperity gap in average incomes between the richest and poorest regions is about 2.5 times, and that figure is almost identical to the gross value added per person, which is the productivity measure. If we drive productivity, we drive prosperity around the country. That would not only help UK plc’s tax receipts, which pay for all our public services, but would level up throughout the UK. I love the phrase “level up”; it is what we should have been doing for decades. The fact that we have not been investing right across the country is not a failure of this Government, but a failure of Governments of all persuasions over decades.

However, the economist David Smith recently made a very interesting point in The Sunday Times regarding the Government’s grand plans to invest more across the country. In his words,

“public investment works only when it operates in harmony with private investment.”

That mirrors an article written by Mark Littlewood of the Institute of Economic Affairs. Members will be aware of some of his articles; he is not really a big spender, and when he was discussing the Government’s planned investment in infrastructure around the UK, he was quite scathing. He asked why, if this is such a wonderful idea and it is going to produce such a good return, MPs do not invest their pensions in it. One of the examples he gives of why this might not be the right thing to do, which I disagree with, is Doncaster. He writes that Doncaster is one of the best connected towns in the country, yet it is not very prosperous, so connectivity alone will not do the job. Public sector investment alone will not do the job.

However, I totally support what I think the Government are planning, which is to invest about £100 billion to £120 billion in the economy over the next few decades. I very much hope that they will support Transport for the North’s £120 billion 30-year plan to deliver projects such as Northern Powerhouse Rail, all the way from the east coast to the west coast, as well as lots of smaller projects such as the dualling of the A64 in my constituency, which are equally vital.

We need to incentivise private sector investment; this cannot just be about taxpayers’ money. If we look at what was done in eastern Germany during the reunification of that country, a huge amount of public sector money was put into East Germany, but the German Government also created incentives for businesses to relocate or start up in eastern Germany. It was a very simple measure, but over time, it was phenomenally successful. I absolutely agree with my hon. Friend the Member for Derby North about free ports and enterprise zones, and tax incentives for businesses to move to those regions.

My right hon. Friend the Member for Wokingham said rightly that the number of businesses set up per capita in London is way higher than in the north. I would like to see a SME revolution across the north; many more small businesses need to be set up, and the No. 1 factor in businesses setting up is access to finance. A troubling story in The Times today stated that the reduction in lending to SMEs in the north is five times greater than in London. That trend is going the wrong way at the moment, and we need to make sure that SMEs right across the country have access to finance.

As many hon. Members know, I am very concerned about the concentration of business lending among four big banks in the UK. That is completely the opposite of what has happened in places such as Germany, where there are 1,500 mutual banks across the SME sector. We should certainly consider encouraging regional mutual banks, in order to make sure that SMEs have access to capital, and should also consider whether public sector procurement should favour more local SMEs. Preston City Council has done an excellent exercise, spending more money with SMEs and less with some larger companies, because that council knows that SMEs spend much more of their money in the local community. It is a virtuous circle.

We should also decentralise agencies’ jobs and spread some of those public sector jobs around the country. I do not know whether the House of Lords will come to York—I think probably not—but decentralising jobs away from our wonderful capital and right across the country has to be the right thing to do. Finally, we should devolve powers and money so that we can get excellent local mayors, such as Ben Houchen in the Tees Valley. We want more people like him, including a York city region mayor and a Leeds city region mayor, so that we can devolve powers and money back to people who really understand the local communities and are willing to undertake a revolution in how we structure our economy, making sure that we get not only more public sector investment, but more private sector investment.

10:26

[Peter Grant (Glenrothes) (SNP)]

I am pleased to begin the summing up in this debate, Mr Hollobone. I do not think my voice will last longer than 10 minutes, so there should be no concerns on that account.

I congratulate the right hon. Member for Wokingham (John Redwood) on having secured this debate, and the three Members who have already spoken—the hon. Members for Strangford (Jim Shannon), for Derby North (Amanda Solloway), and for Thirsk and Malton (Kevin Hollinrake). Maybe unsurprisingly, given the constituencies those Members represent, a lot of the focus in this debate has been on the serious imbalance in the economy of the United Kingdom, and indeed the economy of England, between London and the rest. I am interested to hear what the Minister has to say about finally addressing that issue, because if we look at England in isolation—I am sorry to say that isolation is where England is headed right now—the disconnect between the biggest city and the tens of millions who live in other parts of the country is quite stark. It is something that we do not see in successful economies across the rest of Europe, and it will hold back the wider economic potential of this nation.

I particularly congratulate the hon. Member for Derby North on her return to the House of Commons. I always thought ping-pong was what happened between the House of Lords and the House of Commons, but apparently Derby North has a game of ping-pong between the Conservative party and the Labour party. I do not know how long she will be able to stay this time, but I know that she will relish the challenge of staying a bit longer. I cannot, in all honesty, say that I wish her well in that, but I hope she will not take that too personally.

Interestingly, although we have heard a lot of ideas about how to improve economic growth, we have not stopped to think about what economic growth is, what it is for, and particularly who it is for. One of the reasons why I do not get too obsessed with fractions of a percentage up or down in economic growth is that it can mean a lot of different things depending on how we measure it, and it is quite possible to look as if we have strong economic growth when an awful lot of people are being left behind. Some 20 million or 30 million people in the United States of America live in poverty, so looking at the apparent success of the American economy tells us that growth in itself is not enough. If people get left behind—if we do not have inclusive growth—then our economic growth is not really delivering.

I am very pleased that, with the limited powers they have just now, the Scottish Government have prioritised inclusive growth in a lot of ways that do not immediately look as if they are about economic growth. An example is their success in getting more young people from deprived areas into university. Some 16.5% of first-time entrants into universities in Scotland come from the 20% most-deprived areas, which means that we are close to a position where young people growing up in those areas have just as much chance of going to a top-class university as people from other parts of Scotland. That is massive, especially as education is one of the best ways to improve a person’s life chances.

More importantly, even though university might not be the best thing for a lot of young people, they are the first people in their families to believe that university is for them. The attitude, “A university education isn’t for the likes of me because I’m from the wrong background”, is beginning to be dismantled. It is impossible to estimate the difference that that could make through time.

The First Minister has also supported improving the educational achievement, and therefore the life chances, of young people who have been in the care of local authorities at some point or who have come from families with severe problems. When I was a council leader, I looked at the stark difference in the educational attainment of those young people compared with others of a similar age. Their life chances were being affected almost before their lives had started.

Nicola Sturgeon’s commitment means that those young people now believe that they have every bit as much right to get into university, get a good job, start their own business and prosper in the world as anybody else. That is a major contributor to economic growth. Even if it does not add any percentage points to GDP growth, surely it is right to make sure that if we live in a prosperous society, and we want to call that society civilised, we measure its success not by how many millionaires there are but by how well the people at the lower end of the income scale are faring. There is a marked divergence in that area between the priorities of the Government in this Parliament and those of my Government in my national Parliament in Scotland.

I mentioned a number of features of inclusive economic growth in my contribution to the Queen’s Speech debate last night, which I will not repeat. In particular, I spoke about the marked contrast between the Scottish Government’s investment into my part of Fife to regenerate the local economy, and the UK Government’s lack of attention. For as long as we remain part of the United Kingdom, I will continue to call on the UK Government to step up to the plate and honour their responsibility in that regard.

We talk a lot about the exceptional economic strength of London and the south-east of England, although, as I have said, the imbalance between that and the other English regions will become a major problem, if it is not already. In terms of fundamental economic performance, however, if Scotland were a region of England, it would be the second or third best performing region of England on every economic indicator. Whether in the growth of inward investment, the growth of our exports or the growth of our economy generally, Scotland has a fundamentally strong economy. There is absolutely no doubt about that.

The single biggest threat to our economy is Brexit. Every analysis shows that, after Brexit, our economy will grow less than if we had stayed in the European Union. The Government’s response to the fact that all their analyses showed that Brexit was an economically bad idea was not to stop Brexit but to stop publishing the results of the economic analyses, because they were too embarrassing.

Today’s debate has been very interesting, but the definition of economic success that I have heard, and the direction that the proposals from down here for economic success would take people in, are not what people from my country want to take, so that will result in a significant divergence. I say to hon. Members who represent constituencies in what they call the north of England—although I am not sure Derby and Yorkshire are particularly far north—that one of the best things that could happen for the economy there would be to have our very own northern powerhouse in Scotland. I can see that coming in the not-too-distant future.

10:34

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It has been a pleasure to listen to this interesting debate. I was encouraged by some of the comments of the right hon. Member for Wokingham (John Redwood), whose position is perhaps more similar to that of the Labour party than he might be delighted to hear, but I disagreed with his conclusions in some areas.

When preparing for the debate, I anticipated that the right hon. Member’s take would follow his comments before Christmas, when he welcomed what he described as the “turning around” of the mood in relation to the economy by the Prime Minister, which will

“take some cash…and now is the time to spend a bit of that…That will show that the country has made wise decisions up to this point, and that Brexit will not be damaging to our economy”.—[Official Report, 19 December 2019; Vol. 669, c. 65.]

Of course, that is a bit of a change from some of the advice that we have heard he gave to investors not to continue to invest in the UK.

[John Redwood]

I wish that those completely untrue statements were not constantly repeated. I have never said anything negative about our prospects because of Brexit—never, never. I have always been positive about Brexit.

[Anneliese Dodds]

I am sure that anybody listening to the debate will be delighted to look back at the article in the Financial Times. I hope that they will agree with the right hon. Gentlemen’s statement; some commentators have disagreed.

[John Redwood]

It does not mention Brexit. Brexit is not in the article.

[Anneliese Dodds]

I believe it was about the factors of uncertainty, which is a point that I will come back to, because they very much bear on the debate.

I welcome, however, the recognition that it is necessary to return some public spending to its previous levels. It is not correct to state that public spending was maintained in real terms. When we compare it with the size of the economy, there was an increase, but that is because our economy was not recovering at the rate that we would have expected, particularly in relation to other similar-sized economies—another point that I will come back to. Surely, however, we should not view public spending only in relation to economic growth, or as a way to promote economic growth, although that is an interesting move towards a Keynesian approach, which I cheekily welcome.

The choke-off in spending in many areas has had a number of unintended consequences that have been economically damaging and financially expensive. Paul Johnson from the Institute for Fiscal Studies has described the cuts in the number of police officers as

“Boom, bust, boom…Not a terribly efficient way to manage things”.

It is obvious that it is pretty expensive to take more police officers on to the books again after a number of them have been relieved of their duties.

Similarly, in many other areas, austerity has led to a significant increase in the demand and need for other forms of public services. The cuts to Sure Start and other early intervention and support services have been linked to the steady rise in the number of looked-after children. It is incredibly expensive to look after those children, as well as the fact that that has a terrible impact on their future lives in many cases. The lack of access to primary and other forms of healthcare has been linked to an increased demand for A&E services. The lack of action on air pollution has been linked to increased demand for asthma-related healthcare. Austerity has been self-defeating on its own terms. It is good that we have seen the light now, but it is rather late.

We also need to acknowledge that the Government have removed themselves from some areas of activity. A case has been taken up by criminal justice campaigners, who state that in the UK, rape has “effectively been decriminalised” because only 1.4% of reports of rape are prosecuted in the UK. That has been linked to a lack of resources; it has been stated that the state has a different scope in our country since austerity.

Arguably, all those cuts to public spending have had a significant impact on growth. I enjoyed the comments of the hon. Member for Derby North (Amanda Solloway) about growth. She is right that the economy has been growing every year, but surely that is a rather low bar. Traditionally, since the 1950s, the UK economy has grown on average by about 2.45% a year, but we have been well below that in recent years. If we look across the time from 2008, we have had the slowest recovery from an economic depression since the 1930s. Very recently, we have had more rapid growth than some of those comparable economies, but across the time, particularly in the first few years after the financial crisis when there was that change in Government, we had slower growth than the trend in comparable nations.

[Kevin Hollinrake]

The hon. Lady makes a fair point, but she must understand the starting position. The great financial crash was much more severe in the UK in relative terms than in any other developed country.

[Anneliese Dodds]

It was more severe, for reasons that I will come back to later that relate to some of the hon. Member’s work on the balance of investment in our economy and the impact that the slowdown had particularly on our property industry, which is such a significant part of our economy and which led to that particularly severe impact. We should not forget about that.

The very slow recovery has also been in evidence when it comes to living standards. Real wages are still not, on average, at the levels they were back in 2008. That is another significant difference between the UK and many comparable nations and one that we should not forget.

I welcome some of the discussion that we have had on productivity, which underlies some of the brakes on the growth rates that we would have liked to have seen in recent years. On the drivers of our productivity issues, other nations that are highly dependent on oil revenue, for example, have not necessarily seen the same kind of slowdown in productivity growth. Norway, for example, has much lower working hours than the UK and some people have linked issues of work-life balance to productivity as well—but that is just an aside.

It is critical that we look at the points about skills that the hon. Members for Strangford (Jim Shannon) and for Glenrothes (Peter Grant) rightly made. We have seen significant change to further education in recent years; major cuts have been made to colleges and sixth forms. I welcome the fact that the Government seem to be changing tack in that regard; it is absolutely critical that they do so, because when I talk to firms, the biggest issue they tend to mention is the lack of a skilled workforce, so we really need to focus on that.

We also need to talk about investment, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) rightly mentioned—both public and private investment. We have seen some negative developments in that regard, particularly in areas that are critical to future growth. Clean energy investments have plummeted since 2015. In 2018, annual clean energy investment was at its lowest level since 2008. There are a range of factors, but I would include the regulatory uncertainty in the sector. We have seen some big changes over time, and we need certainty.

We need to have an appropriate environment for small businesses and to encourage entrepreneurship; I agree with some of what the right hon. Member for Wokingham said about threshold effects. We need to learn from other countries. It is possible to calibrate the tax system far more closely to profits and to not have big cut-offs, such as those we have, for example, in relation to VAT. I would encourage Her Majesty’s Revenue and Customs to look at that as the tax collection authority—if it has the resource to do so, which is a significant issue.

On IR35, the elephant in the room is that our unemployment regulations are not calibrated with tax regulations; definitions are not the same in the two systems. I have not seen the kind of grasp of that issue that I had hoped for from the Government. IR35 and other measures are trying to plaster over some of the issues caused by the lack of consistency in definitions, but we need a longer term approach from Government.

The right hon. Member for Wokingham spoke in some detail about tax cuts. On corporation tax, some of the changes we have seen in the US have resulted from funds being moved out of tax havens—let us call a spade a spade here—but they have also resulted from much more aggressive pursuance of corporation tax equivalents by the US authorities. When it comes to the UK case—this seems to be a debate that we have just about every day in this House; I suspect that it is getting slightly boring for people reading Hansard—the evidence indicates, and commentators have said time and again, that the reduced rate of corporation tax has not led to increased growth in investment in the UK and that it has coincided with a reduction in the growth of investment and, above all, with a significant reduction in revenue, which has a knock-on impact on the possibility of boosting skills and so forth, and other drivers of productivity.

I think the UK population is very aware of that situation. The recent British Social Attitudes survey indicated that 60% of people want to see taxes boosted, if that could lead to more sustainable public finances and spending. Only 4% of people want to see them fall.

On the issue of free ports, which was mentioned by the hon. Member for Derby North, we need to tread with care and look at the research and the international evidence, much of which indicates that those kinds of structures can be very good at moving economic activity around but they are not always as good at promoting new economic activity—it tends to be the factor endowment in different areas that will promote development sustainably, the level of skills in the workforce and the level of investment in plant and so on. I very much enjoyed the hon. Member’s speech, particularly her focus on regional disparities; the hon. Member for Thirsk and Malton also concentrated on that. We need to go much further. It is a shame that we have not seen a commitment from the Government to shift economic activity that is under their control to other areas. Labour said during the election that we would like to see part of the Bank of England being moved up to Birmingham. I hope that we might see some more bold measures coming from the UK Government in that regard.

In relation to the claims that tax cuts will necessarily promote investment in economic activity, when it comes to the drivers of entrepreneurship among less well-off people, it is actually regulatory measures that can really make the difference—for example, minimum wages and rights at work.

Finally, on the comments by the right hon. Member for Wokingham about the drivers of risks in the world economy and the activities of the Bank, I was surprised that he did not make any mention of the impact of tariffs and so on in China and the US on the automotive industry. Most commentators would say that they played a significant part, and they would also talk about the fact that the wiggle room for policy activity by the Bank is of course reduced by the very low interest rates that we have. That is a significant issue for the UK, where we have that rather unbalanced situation with so much economic activity tied up in property.

10:47

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to be able to speak for the Government in this first Westminster Hall debate of the new decade, as well as of the new parliamentary term. I congratulate my right hon. Friend the Member for Wokingham (John Redwood) for initiating this debate and for his very wide-ranging and thoughtful speech. I am sure he will be as pleased as I am and as I know Members across the House will be that today’s economic news reinforces a picture of an economy that is growing. The International Monetary Fund predicts that the UK is about to grow faster over the next few years than its major rivals in the eurozone and many of the G7—Germany, France, Italy and also Japan. PwC’s chief executive survey now rates UK attractiveness highly once again—I think we are the fourth most attractive global destination for location for businesses. That is very far from the narrative of isolation that we are hearing from the SNP and indicates the continuing international connectivity and scope for investment in our economy.

As my hon. Friend the Member for Derby North (Amanda Solloway) pointed out—I rejoice to see her back in this House—we are in the extraordinary position of having had 10 years of continuous annual economic growth. That is a remarkable achievement, and I am sure she will be as pleased as I am to see that the latest information is that the jobs market is strengthening, even from its already very strong current position. That economic growth is an amazing fact. If someone had said in the lee of the 2008 financial crisis that, beginning with the Conservative Government of 2010, there would be a full decade of uninterrupted annual economic growth, I do not think there is a person in this country, let alone this Chamber, who would not have bitten their arm off. That is something that we should all delight in, but that we should acknowledge has limitations that we need to try to overcome.

One of the things that was most interesting about my right hon. Friend’s speech was the way in which he highlighted the change in economic policy. He focused on the fiscal change and on the transition from the Budget restraint of the last two Governments to the more expansionary fiscal policy that this Government have indicated in the spending round and that we may see in the Budget. I would suggest there is something slightly deeper going on. There is a change in the Government’s conception of economic policy. We are not thinking of economic policy in what might be called a more purely general equilibrium way, by which investment flows automatically to investable propositions and finds returns. We are determined as a Government to build more energy into that and to adopt a focus that is more specifically targeted on regional needs and identities, and it is that sense of economic policy that marks a distinct intellectual step forward. If anyone is interested, I tried to explain this in a piece in the Financial Times yesterday that highlights this transition.

I will say a bit about the interesting speeches that were made by my right hon. Friend and other Members. He is right to say that lower taxes can be part of a fiscally expansionary policy. He possibly ignores some of the differences between ourselves and the USA. Obviously, the US had a massive fiscal boost, which is something it could do partly because of the dollar’s extreme strength as the global reserve currency. Of course, that was accompanied by a significant—in this country, it would be politically contentious—deregulation in energy. There are important differences between the US economy and our own.

My right hon. Friend mentioned the constraints under which the motor industry operates, but he did not mention dieselgate, which was an absolutely disastrous blow to the credibility of the global diesel manufacturers. Nor did he mention the fact that current diesels are still very heavy emitters—even Euro 6, compared with current environmental standards. The Government have frozen fuel duty and grown VED only in real terms. It is about trying to strike a balance between a shift towards a greener economy, particularly a green transport economy—at a time when we have not quite got to the point in the S-curve where the supply of electric vehicles is coming through at enough scale to warrant people using them—while moderating and mitigating the impact on households.

My right hon. Friend and the hon. Member for Oxford East (Anneliese Dodds) touched on what he described as the top-down imposition of IR35 rules. As he knows, IR35 rules have not changed. All that has changed is the way IR35 is being assessed, and we have called for a review in order to ensure that its implementation can be as smooth as possible. He touched on the issue of public sector productivity—again, rightly—and there might well be scope for using things such as telemedicine to improve the productivity of the public sector, but an intrinsic difficulty is one of the economic laws that we bump up against: Baumol’s cost disease. The cost of services relative to manufacturing continues to escalate, and it is not possible in the public sector to have industrial-type improvements in productivity. We do not want teachers to have too many pupils in the class, and we do not want nurses to have too many people to examine and support, so productivity is intrinsically more limited. The Government must therefore be cleverer about how we use technology, which is the purpose of the new GovTech fund that we have announced.

I will pick up on some of the other themes of the debate before turning to another point. I agree with the comments made by the hon. Member for East Londonderry (Mr Campbell) about the importance of spreading wage growth across the UK, which was a point also made by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) in his very thoughtful speech. I also share the view of the hon. Member for Glenrothes (Peter Grant) that it is a mistake to see property as a speculative asset, and there is no doubt that the crash of 2008 was caused by a massive over-leveraging in the banking sector. As he will recall—Labour does not like it when I point this out—UK bank borrowing across the sector as a whole was 20 times equity for 40 years, encompassing 1960, 1970, 1980 and 1990. In 2000 it started to go up, and by 2017 it was 50 times equity. That was what fuelled the enormous speculative boom.

[Peter Grant]

Will the Minister give way?

[Jesse Norman]

I will not, because I am very short of time.

I share the concern expressed by the hon. Member for Strangford (Jim Shannon) about the toxic atmosphere in SW1.

I will mention another issue that is more specific and personal to me, and I hope colleagues will indulge me. In my constituency in Herefordshire, we have been trying to create a new model of higher education through what we call a new model institute in technology and engineering. It has attracted a great deal of attention across Government because it creates the possibility of significant regional economic growth that is closely tied to the creation of university campuses in cathedral cities such as Canterbury, York and Lincoln. I flag it now because, from a national perspective, it represents a portable model by which higher education of the most value-added kind, and that therefore has benefits for entrepreneurship and business formation, can be moved to all parts of the country, having been tested and developed in Herefordshire. One would think that this was something that Government at all levels would support. Her Majesty’s Government, in the form of the Department for Education, the Department for Business, Energy and Industrial Strategy, and the Ministry for Housing, Communities and Local Government, have been extremely supportive of it.

One might also think that the local enterprise partnership, the Marches LEP, would support it. I am sorry to tell colleagues that the Marches LEP—I say this having had at least a year of wrestling with it on this topic—has been absolutely diabolical in the way it has treated this very innovative project. It has received £23 million from Government and all the support one could imagine. It has received private sector investment, and investment from matched funds. The LEP, which by charter is supposed to support economic growth in the Marches, has done nothing but prevaricate and delay. Even now, it is seeking to impose a £5 million indemnity on Government investment, although the Government made it clear in letters from the Secretary of State and from senior civil servants as early as January 2019 that no such indemnity was required. The specific people involved—the then chairman of the LEP, Graham Wynn, and the chief executive, Gill Hamer—should be subjected to significant criticism in the House. I put it on record that this important opportunity for a portable model of regional growth in higher education, which was developed through a pioneering model of tech and engineering at university and which offers possibilities and creativity, has been ignored and is being actively undermined.

Having said that, let me congratulate my right hon. Friend the Member for Wokingham again on introducing this very wide-ranging and important debate, which has examined not merely specific policy change but the very basis of economics itself. I thank him for securing the debate.

10:57

[John Redwood]

It is a great pity that Labour Members have yet again chosen to completely misrepresent my article in the Financial Times. Had they read the article, they would have seen that it did not mention the word “Brexit”, because it was not about Brexit. At the time I was writing that article, as today, I said consistently that Brexit offers lots of opportunities that can make us better off, if my right hon. Friends in the Government do the right things, as I hope they will.

One thing they could do is take VAT off green products. We have taken green policy to extremes today by turning all the heating off in the building, and I wish they had warned us that we needed to bring our grey coats in order to be true greens. There are many green things we can do. Taking VAT off products such as draft insulation, boiler controls, wind farm parts and so forth would be a good idea, and we can do that as we leave the EU. I recommend that strongly to the Minister.

I recommend to my hon. Friend the Member for Derby North (Amanda Solloway) that an enterprise zone allied to a freeport would give it extra impetus, because there would be an easing of tax rules, business rates, planning regulations and so forth, which would stimulate far more enterprise at the same time as encouraging the import-export trade, free of having to pay the tariffs on those things that are re-exported.

The debate on productivity has been useful. I agree with the Minister that we do not want fewer doctors or teachers in relation to the number of patients or pupils. I am very pleased that the Government are recruiting extra, but there are many things that can be done by applying great modern technology to the public sector, particularly to all the administrative functions. We need to promote people into more rewarding jobs and give them much more computer power to do the things they have been doing. That is the way to get a higher-wage economy and to have more enriching and more worthwhile jobs. We want computers to take more of the strain throughout the public sector, as they are doing in many parts of the private sector. We need to make sure that we get an investment drive.

Motion lapsed (Standing Order No. 10(6)).