The Government’s Productivity Plan

Debate between Lord Redwood and Iain Wright

Tuesday 28th February 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I welcome the opportunity for the House to debate the supplementary estimates affecting the Department for Business, Energy and Industrial Strategy. It is a real honour and pleasure to chair the Select Committee and I am particularly fortunate to lead a Committee with excellent hon. Members—I see some of them in the Chamber: the hon. Members for Cannock Chase (Amanda Milling), for Derby North (Amanda Solloway), for Edinburgh West (Michelle Thomson), for Bedford (Richard Fuller) and for Warwick and Leamington (Chris White). We try to work hard together to put in place policies that ensure workers in this country have higher skills and wages and greater protection, in firms that are productive, competitive, profitable and have barriers to scale up removed.

The title of today’s debate references the Government’s productivity plan, and I shall come on to that in a moment. However, given that this debate is about the estimates, I want to mention a couple of points regarding them. On a broader point, in my time in the House, it has always struck me as odd, even concerning, that billions of pounds of taxpayers’ money are voted through on the nod without any real debate, scrutiny or challenge. This debate will be about the Government’s productivity plan, and most of the contributions, including my own, will be on that document, which already seems to be becoming rapidly obsolete. At the end of it we will be asked to approve billions of pounds. The manner in which estimates are presented is opaque and often downright unhelpful. It is difficult to follow the money.

Of course, Departments produce annual reports, which are more helpful. They are scrutinised by Select Committees such as our own, and the National Audit Office conducts its own work, but the basic point of this place is to scrutinise and to challenge the Executive and then legitimately to permit the Government’s wish to tax the general public. I am far from convinced that the current system allows that to happen in an effective manner. Therefore, I look forward to the Procedure Committee coming up with some more radical improvements in this area.

The supplementary estimates reflect the machinery of government changes, with two Departments, the Department for Business, Innovation and Skills and the Department of Energy and Climate Change, coming together and losing responsibilities for further and higher education and for exports. BIS and DECC had resource savings targets of 16% and 17% respectively by 2020. The BIS Department had the “BIS 2020” publication, which contained a number of proposals to make budget cuts in this period, including, for a Department tasked with regional growth and pushing the northern powerhouse, the closure of the Sheffield office. A large part of the savings for the BIS Department was to be achieved through changing the way further education and higher education were to be funded. However, given the machinery of government changes, that option is no longer available to BEIS. Therefore—this relates to the point I made on the opaqueness of the estimates—it is impossible to tell, based on the information in front of us, what the planned savings of the new Department are and whether the “BIS 2020” programme is continuing.

When the Secretary of State came before the Select Committee before Christmas, I asked him whether similar savings of 16% to 17% would be required. He confirmed that. He said that the “BIS 2020” programme was no longer available, because it was a new Department, but he did not offer any alternative. When I asked what things the Department would stop doing in order to make the necessary cuts to the resource budget, the Secretary of State said:

“We are going to set out the proposals to the Department and I am sure the Committee will want to see that. I am very happy to send them to the Committee to look at. We want to take the opportunity of the two Departments coming together to, as it were, re-engineer the way that the Department is run to make sure that we take advantage of a big opportunity to tie things up here internally.”

That is very clear. However, no such proposals have been brought forward. I would be grateful if the Minister could outline what specific savings the new Department has to make and precisely how he intends to make those savings, including what activities will be stopped. That is in the context of the supplementary estimates before us, which state that the administration costs of the Department are rising from £425.6 million this year to £528.5 million next year. There is no explanation for that in the memorandum. Could the Minister provide one?

On the Government’s productivity plan, the factors regarding the UK’s productivity performance are well rehearsed but worth reiterating. At a national level, productivity has stalled. GDP per hour stands at 17% below its 35-year long-term trend and has only just exceeded the peak it had reached prior to the global financial crash. We as a nation are falling further behind our major competitors. Output per hour in the G7 excluding the UK was 18% above that of the UK, the widest gap in productivity since records began in 1991. That statistic shows the marked differences in performance between ourselves and our competitors. When it comes to productivity, we are above Japan by about 16 percentage points. Italy, however, is 10 % more productive than we are. The US and France are 30% more productive than we are, and Germany is 36% more productive than the UK. Of course, productivity in all developed countries was badly jolted as a result of the 2008 global crash, but the gap between our long-term productivity trend and that of our competitors in the G7 is about twice as big. Productivity and pay are intimately linked. Productivity gains are the way in which real wage growth—and, hence, living standards—can rise.

[John Redwood (Wokingham) (Con)]

Does the hon. Gentleman accept that some countries with very high levels of unemployment can have a higher productivity figure, whereas we put the people to work in lower value activities, which is surely better than them being out of work, because the best way to get a job is to start off in a job that is not so good?

[Mr Wright]

I will respond to the right hon. Gentleman in a moment when I talk about the structure of our employment market and how I do not think it deals with living standards, helps our constituents, or improves the long-term competitiveness of our nation.

It is little wonder, given the intimate link between productivity and pay, that Paul Krugman said:

“Productivity isn’t everything, but in the long run it is almost everything.”

Reflecting this, wage growth has been anaemic. In the period between 2007 and 2015, British workers suffered a bigger fall in wages than those in any other advanced country with the exception of Greece. Average pay fell in real terms by more than 10%. In the same period, real wages grew in France by 11% and in Germany by 14%. Median pay for workers in this country is still around 5% below its pre-crisis peak. There has been a lost decade of wage growth for our constituents, the British workers.

However, the headline nationwide figures for productivity, worrying though they are, mask the stark differences in regional productivity. Gross value added per hour in London is 32% above the UK average. The only other region with productivity above the UK average is the south-east of England, which is 9% above the average. The regions of the north and the midlands—including my own region of the north-east, and those of my fellow Select Committee members, the hon. Members for Cannock Chase, for Derby North and for Warwick and Leamington—have productivity levels between 10% and 15% below the UK average. In the nations of the United Kingdom, productivity in Scotland, which includes the constituency of the hon. Member for Edinburgh West, is 2% below the national average, while in Wales it is 19% below the average. Were it not for the performance of London and the south-east, the gap between ourselves and our major economic rivals, with whom we are competing for orders, trade and market share, would be even more dire.

--- Later in debate ---

[Mr Wright]

I thank the hon. Gentleman for reminding me about that intervention. Employment is crucial and having record levels of employment is a good thing. However, we want good, full-time employment on permanent contracts. We want people to be secure in their jobs and able to invest in their own lives and communities with some confidence. Over the past 20 or 30 years, we have moved towards insecurity and precarious forms of employment, such as bogus self-employment, zero-hours contracts or agency work. We have to think about our vision for the economy. Is it about everybody in work being paid pitiful wages or ensuring that we can pull the activities of Government and industry together to upskill people and move them up the value chain so that, ultimately, they have higher living standards?

[John Redwood]

I think the hon. Gentleman and I agree on this. My point is that it is easier to get to higher pay, more skills and smarter working if we start from a base of many more people being in work, which is the good news about Britain. None of us is happy with people in low-paid jobs without skills or machine power at their back.

[Mr Wright]

The right hon. Gentleman must accept that although the best position to be in to get a job over the past five or 10 years was to be in employment, people are stuck on low-paid, zero-hours contracts in precarious types of employment. They are not moving on. There is no social mobility or economic progress. We seem to be stuck at the bottom floor when it comes to getting people into employment and that is not the model that we should be using.

I hope that the industrial strategy learns the lessons of the productivity plan. The Select Committee will publish our report into the Government’s industrial strategy later this week, and we hope that it will address some of the matters that the productivity plan does not: a longer-term focus providing more policy certainty; greater collaboration and co-ordination across Government to mitigate the problem of a silo-based approach across Whitehall Departments, as mentioned by my hon. Friend the Member for Hove (Peter Kyle); and the lack of meaningful metrics, milestones and measurements of success. If it is to work and succeed, the industrial strategy cannot just be this year’s model; it needs to be a thoughtful and well-established cornerstone of an economic and business policy framework, and an economic and business mindset, to increase productivity, compete with the rest of the world, and improve living standards for all in this country.

Budget Resolutions and Economic Situation

Debate between Lord Redwood and Iain Wright

Wednesday 8th July 2015 Commons Chamber

[John Redwood (Wokingham) (Con)]

I remind the House of my entry in the Register of Members’ Financial Interests, which reveals that I am an investment and business adviser to a couple of companies.

I congratulate my hon. Friend the Member for Louth and Horncastle (Victoria Atkins) on her excellent maiden speech, in which she gave us a very good portrait of her constituency. I have noted the need to beware of her arrival when she is in her armour; if she throws her gauntlet around, I think that I will be looking the other way. She will clearly be a champion for her area.

I welcome the emphasis on prosperity in the Budget. I want a party and a Government who drive more prosperity for everyone in our country, and I want that to benefit people on all income levels. I especially want to see more people get into work and find other routes out of low incomes and poverty. The Chancellor is right to say that Britain deserves a pay rise and that we need to reinforce that pay rise as people get it, or reinforce their success in getting into a job and getting a pay packet, with tax cuts. I want tax cuts for all, and I am glad that my right hon. Friend has made a start on the promises made in our Conservative manifesto.

It is crucial that, as the Chancellor goes about the task of getting rid of unemployment and poverty through supportive policies, people are better off. What I want to do when we get to the detail of the welfare cuts is to see what the impact is, because we need to look at the overall impact. If people are going from unemployment to work, staying in work, getting a pay rise or getting a tax cut, those are all positive things that will make them better off, and we need to make sure that they are not completely offset or badly damaged by the welfare changes he is making. I look forward to those more detailed debates.

The overall picture in the Budget is quite different from the picture of the next five years set out in the outgoing coalition Government Budget. There is nothing surprising about that. We now have the opportunity to think the strategy through, based on the success in getting the recovery this far in the last Parliament, and learning from the coalition’s experience of the difficulties of getting that recovery up to speed and getting productivity to come through as we would like. The Chancellor is right to make adjustments. People need to work smarter to be paid better. We need a pay rise but we have to earn it, and that is the purpose behind many of the measures.

The expenditure proposals in the March Budget were quite tight in the middle years of this Parliament, and the Chancellor seems to have reached that conclusion as well, because the Red Book sets out some quite big spending increases for those middle years. Current spend in 2016-17 will be £15 billion higher than the March forecast, and the 2017-18 current spend will be £25 billion higher. I think that will make things a bit easier. At the time of the March Budget, there was quite a lot of criticism that the numbers were tight, and the changes give us more scope. We have seen some of the benefit already in the defence statement, but there will be other benefits. We have rather more latitude.

By the end of this Parliament, on the plans set out today, we will be spending £69 billion a year more than we were in the last year of the last Parliament. No doubt, there will be arguments about whether or not that is a real cut. We had those arguments in the last Parliament, when there was a similar rise in spending. I argued that there would be no overall real cuts and was told I was wrong, but the subsequent figures showed that that is broadly what happened: we avoided overall real cuts, but within that, because health, education, the European Union contributions and overseas aid were priorities, some areas suffered, to balance the figures.

The way the deficit comes down is not through spending cuts, of course; it is through a large increase in tax revenues from a more prosperous and faster growing economy. The figures state that tax revenues will be £168 billion a year higher in the last year of this Parliament than in the last year of the coalition. I would have thought that that is a tax rise to suit all socialists. It is a large increase in taxation, but I am pleased that it will come not by raising the rates—indeed, if we raised rates, we would probably collect less money in many cases—but by growing the economy and by people being better off and so able to afford the taxes. By the end of the Parliament, tax revenues will be some £10 billion a year higher than was forecast as recently as March. That shows the improvement in prospects.

[Mr Iain Wright (Hartlepool) (Lab)]

Has the right hon. Gentleman seen the OBR report, accompanying the Red Book, which states:

“We have revised borrowing up in 2016-17 and more significantly in 2017-18, while the surplus of £5.2 billion in 2018-19 that we forecast in March is now expected to be a deficit of £6.4 billion.”?

Is he comfortable with that?

[John Redwood]

I am perfectly comfortable with that. It is the direct result of easing the squeeze on spending to which various people objected in the past. The figures show the deficit coming down and being eliminated over the course of this Parliament, which is exactly what ought to be done. I wonder whether the hon. Gentleman’s new enthusiasm for that is personal, or whether it is just to tease me, but if it is personal enthusiasm, it is welcome to hear that the Labour party would now like to go faster in deficit reduction in the middle years of this Parliament than will happen under these proposals.

The economic background to the official forecasts shows that the growth figures are still pretty good and we have had a welcome upward revision to figures for the immediate past. We also see a welcome upward revision to the number of people in employment, which is fundamental to the whole strategy. There has been a modest deterioration in the balance of payments, which shows that there is more work to be done. The productivity work will link into that to make us more competitive. We have to earn our living, so we need more competitive products. All that growth and improved revenue is taking place despite higher interest rates—the forecast assumes a modest increase in interest rates compared with past forecasts.

On productivity—working smarter and working better —I welcome the scheme that the Chancellor outlined today. It will mean better roads and spending money on railways more wisely to get extra capacity in the parts of the system where we need it and increased efficiency. There will have to be a lot of work on energy, because we will need cheaper and more energy: as the march of the makers begins and the northern powerhouse cranks up, more electricity and more gas will be required. I hope that we will find cheaper ways to produce them than we have under the policies followed in recent years. It is important that we price people back into energy-intensive markets, rather than export all our energy-intensive business to other countries. It is no great win for those who want to cut carbon dioxide emissions if it is poured out of a factory in China rather than one in the United Kingdom. We need to be conscious of the need to be competitive in our energy generation.

We will need more on broadband, and clearly much more on housing, as many people have mentioned recently. I look forward to an investment-led recovery, with much more private sector investment coming in. We need to pay special attention to cheaper energy and to fix the railways, where we are spending too much and getting too little. It is not just a question of big investment programmes; it is a question of managing them better. Above all, we need to make sure that, as we implement the welfare reforms, everyone is better off and gets the benefits of tax cuts and higher wages.