Economy: Growth

Baroness Valentine Excerpts

Thursday 21st June 2012 Lords Chamber

[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.