Queen’s Speech

Lord Adonis Excerpts

Thursday 5th June 2014 Lords Chamber

[Lord Adonis (Lab)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Deighton, and to pay tribute to him for his sterling work over the past year in promoting HS2. Six weeks ago, the House of Commons carried the Second Reading of the HS2 Bill by the colossal margin of 452 votes to 41. HS2 is vital to transforming transport capacity and connectivity between London and the major cities of the Midlands and the north. The Bill will proceed in this Session with our support.

However, if HS2 is the “Flying Scotsman” of the new Session, the rest of the Queen’s Speech barely merits “Thomas the Tank Engine”. Starting with the economy, the gracious Speech tells us:

“An updated Charter for Budget Responsibility will … ensure that … governments spend taxpayers’ money responsibly”.

I assume that this means that the Chancellor will be updating his fiscal rules of 2010 and proclaiming them as a charter. However, since the Chancellor is not on target to meet either of his 2010 rules by 2015 as intended, because of the weakness of the economy for most of the four years since he became Chancellor, it is hard to see why the public should have more confidence in any new set of rules just because they are dressed up as a charter.

As for the proposed legislation to cut bureaucracy and promote access to finance for small businesses, we welcome any measures to deal with late payments in particular—although the public sector is itself often the culprit. However, the Government have spent the past four years announcing one initiative after another on access to finance, mostly to little effect: remember Project Merlin? The House will not be holding its breath. The plain fact is that, as the Bank of England’s latest Trends in Lending report said in April, lending to all businesses is still falling, with small and medium-sized enterprises hit worst.

The Queen’s Speech also promises yet another Bill to reform the planning regime and to promote infrastructure, even as the ink is barely dry on the previous Growth and Infrastructure Act—intended, yes, to reform the planning regime and to promote infrastructure. “Déjà vu all over again”, as someone once said.

The House will therefore want to focus not so much on the measures in the Queen’s Speech as on the economic fundamentals. Thankfully, the economy is at last reviving. We all welcome the recent improvements in employment and output, and the fact that inflationary pressure remains low. However, before we hear too much about an economic plan that is working, the best gloss that can be put on Britain’s relative economic performance is that, at last, we are in catch-up mode. Unlike the US, Germany, France, Canada and Japan, the UK’s GDP is still below its 2008 peak—out of the G7, only Italy has a worse record. As the Office for National Statistics says in its latest analysis,

“UK real GDP fell by 7.2% … and the subsequent economic recovery has been one of the slowest in the G7 … and in UK economic history”.

Nor has economic growth been accompanied by any pick-up in productivity, the key determinant of long-term prosperity. Productivity growth in the UK since 2007 has been lower than in all other member countries of the G7, including Italy. This underlying productivity weakness partly explains why average real incomes have been languishing for so long and why wage growth has been so weak.

Exports remain especially weak. The current account deficit stands at 5.5% of GDP, the highest level since records began in 1955. Over the past two years, the UK’s exports have been flat, and the Government are not remotely on track to meet their target of doubling exports to £1 trillion by 2020.

As for employment—made much of by the noble Lord—the top-line employment figures tell only part of the story. For instance, 1.4 million people are working part-time because they are unable to find full-time employment. As the Bank of England notes, this very high number of people reporting that they would like to work longer hours points to considerable underemployment. The rise in claimed self-employment, which accounts for more than half the increase in total employment reported since last summer, also suggests that millions simply cannot find permanent jobs and are looking for other ways to make ends meet.

Youth unemployment remains especially high. At 19%, the UK’s youth unemployment rate is higher than that of Italy, Denmark, France, the Netherlands, Austria and Germany. We are failing the next generation —a lost generation of young people with poor skills and no work, and little hope for the future.

The truth is that Britain is growing but the foundations are weak, the young are especially disadvantaged and a good deal of today’s growth is being driven by consumer debt and a surge in house prices. This partly also explains why growth is so regionally imbalanced, concentrated on London and the south, while the Midlands and the north do less well. Tellingly, 21 of the 25 worst performing retail centres in the country are in the north, the Midlands and Wales, while 22 of the 25 best performing are south of the Watford Gap.

Household consumption and private housing investment, fuelled by the housing price surge in London and the south-east, represented fully 60% of GDP growth last year, while net trade and business investment, essential for driving innovation and high-value jobs, remain worryingly low. A critical issue is the failure to build new homes on anything like the scale that the country needs. The rate of housebuilding is lower than at any time since the 1920s. Barely half of the 200,000 new homes a year that are required are being built nationally, and less than a third of the 60,000 a year needed in London.

Where are the policies to deal with these fundamental weaknesses, to improve youth skills, to transform vocational education, to accelerate investment and to dramatically improve the rate of housebuilding? To tackle youth unemployment, we need more apprenticeships and more work opportunities for young people, yet the number of apprenticeships for under-19s is still below its 2010 level—a figure disguised by the Government lumping all apprenticeship numbers into one total, when most of the growth under this headline number is for those already in employment in their mid or late 20s. Even in the public sector, apprenticeship numbers are pitiful and too little is changing too slowly. The Civil Service used to have no Whitehall-wide apprenticeship scheme whatever. Now it has just started but for a mere 100 apprentices when there should be thousands.

The Government’s Youth Contract, billed by the Deputy Prime Minister as the big answer to youth unemployment when it was launched two and a half years ago, has massively underachieved. The policy was for 160,000 wage incentives for employers taking on long-term unemployed young people. There were also to be 250,000 unpaid work experience places. Two and a half years later, a mere 4,000 young people have been placed with an employer for six months with full government support; that is just 2.5% of the way to 160,000. Furthermore, a recent employers’ survey revealed that 81% of the jobs advertised under the Youth Contract would have been offered anyway. As for the 250,000 work experience placements, fewer than half have in fact been created.

It is a similarly worrying story on housebuilding. Why is the rate of housebuilding so low? It is because of a serious construction skills shortage, private sector land-banking and the unwillingness or sheer inability of the public sector in its various guises, from local government to the MoD and the NHS, to get building on its own land. There have also been some nimby councils but others want to do more but do not have the powers. The Government have done far too little to tackle these problems. For example, three years ago the Prime Minister told us that he wanted to see new garden cities. So far only one has been announced, in Ebbsfleet, which already had planning permission for 10,000 homes.

To drive improvements in skills, housing and infrastructure, the Government should be following the advice of the noble Lord, Lord Heseltine, and empowering England’s cities and localities by radically devolving budgets and powers to local authorities and to local enterprise partnerships, overcoming what Vince Cable called the Maoist abolition of the regional development agencies in 2010. Instead, only a fraction of the Heseltine devolution has taken place, mostly dependent on complex and protracted individual city deal negotiations, which is far from the rocket boost required.

It is a similar story of half measures or no measures in respect of energy and infrastructure. The average dual gas and electricity bill is now at a record £1,353, up from £819 in 2009. Over the four years to October 2013, gas prices increased by 21% and electricity prices by 25%. The Office for National Statistics estimates that the share of household income going on essentials has risen by 10% since 2003, which is a huge burden on family budgets. The lack of an effective energy market is part of the explanation. That is not just our contention: since Ed Miliband put this issue up in lights, it has become the Government’s and the regulator’s contention too.

In February, Ed Davey asked the big six energy companies to review their pricing. He also asked Ofgem to think radically and even consider breaking up the big six if they had been overcharging. In March, Ofgem reported back that it found evidence of both collusion and overcharging, evidence of “possible tacit coordination” between energy companies that includes a,

“strong alignment of pricing announcements, in both timing and extent”,

and evidence that the big six have seen increasing profits that do not appear to reflect increasing efficiency, a possible sign of lack of competition. A Competition and Markets Authority investigation is now under way, but nothing is being done in this Queen’s Speech to freeze or reduce energy prices while that happens and we will not get any action on competition until after the election. As for energy infrastructure and new supply, according to a recent survey by the CBI and KPMG, two-thirds of British companies fear that UK infrastructure will deteriorate over the next five years, and their concerns are most critical on energy.

Legislation on fracking is proposed in the Queen’s Speech which, the Government say, would put shale gas production in line with the coal industry, water and sewerage, all of which have access to underground land. We welcome that in principle, provided that communities are reassured about impacts on the environment, including contamination of the water table, but the critical issue is that a fifth of the UK’s power-generating capacity will close over the next decade, but plans for delivering new gas and nuclear power stations are well behind the curve. Ministers talk about a dozen new nuclear power plants, but only two are as yet proceeding. As for gas, because of a lack of clarity and confidence in the Government’s capacity mechanism for encouraging new supply, we face a situation where existing gas stations may be mothballed but there is little appetite for new plants. On renewables, there appear to be two separate Governments: Ed Davey’s DECC is in favour while Eric Pickles’s DCLG repeatedly turns down applications for extra capacity.

The story on housing and energy applies to transport, too. Although a few welcome projects, such as Crossrail, Thameslink and HS2, are proceeding—mostly, I should note, inherited from the previous Government—there are too many plans without delivery, the biggest plan of all being the constantly relaunched national infrastructure plan, which is a catalogue of everything on the infrastructure drawing board, only a fraction of which is actually being taken forward

In one vital area of economic importance, extra airport capacity in the south-east of England, there is not even a plan, just a commission, which is not due to report for another year, because for the entirety of this Parliament, the Government have not even been able to form a view, let alone to take a decision. It is the same with the new lower Thames crossing—vital infrastructure to relieve the M25 Dartford crossing, the most congested short stretch of road on the entire trunk network. The previous Government published three options for the new crossing five years ago. Since then, the coalition Government have merely reduced the three options to two so there still is no plan, let alone a decision. Yet a new crossing would be entirely paid for by the private sector through tolls.

The Government’s non-delivery is summed up by the extraordinary saga of the A14. The upgrade of the A14—a vital growth corridor from the east coast ports to the Midlands—was shovel-ready in 2010. One of the first acts of the coalition Government was to cancel it, along with a string of other major transport schemes. Two years later, in 2012, Ministers tried to resuscitate the A14 as a toll road with magic money. That scheme collapsed and last year, finally, the Government said that the A14 would go ahead on its original plan. So a vital major trunk scheme, which might have been finished by now, is not even remotely close to starting. A very large number of the schemes that the Minister mentioned in his remarks from the road plan of last year are simply the resuscitation of schemes that were cancelled in 2010.

As a country, we face huge challenges. At last there is growth but far more needs to be done to tackle youth unemployment and underemployment, and to construct the homes, infrastructure and energy and transport systems that Britain needs to thrive. Where the legislation in the Queen’s Speech addresses these problems, we will give it our support but the imperative is for a bold and ambitious Government—and for that, the general election cannot come soon enough.