Budget Statement

Lord Bhattacharyya Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I declare my interest as chairman of the Warwick Manufacturing Group, an academic department of the University of Warwick. It is a pleasure to debate our economic situation in such distinguished company.

The summer Budget may have been a mere sequel to the spring Budget, but it had a very different plot. I welcome the Chancellor’s decisions that the pace of deficit reduction should slow, wages must rise, non-doms need to pay more tax and departmental spending cuts should be smaller. I only wish that he had recognised these needs before the election.

However, there are several poor choices in the Budget. Take the excise duty surcharge on vehicles. The vehicle sector is one of the largest exporting sectors in this country but the Chancellor has put a duty surcharge on it. The premium automotive sector is one of our few manufacturing success stories. I do not see why the Government want to levy a punitive charge that will discourage innovation in low-emission cars and exports.

That said, it is always better to seek consensus than conflict, so I wish to focus on a problem that all parties agreed the Budget must address: our low productivity growth. The Chancellor calls it the challenge of our lifetime, and it is not hard to see why. On page 180 of the Office for Budget Responsibility forecast we see what will happen if productivity stalls: economic growth falls by one-third, we miss all our current and proposed fiscal targets and the welfare cap is breached. Economic success therefore requires an improvement in productivity.

Productivity has many components. It cannot be transformed with a glib announcement; it requires sustained focus over many years on a broad range of measures. Business investment in this country has been historically low, whether in capital or in innovation, and I welcome all measures that will help change Britain’s historic short-term mindset, which has removed most of our manufacturing industry and brought it down to 10% of GDP. Without strong support for industry, especially for inward investors, they will eventually look elsewhere. We were responsible for the biggest inward investment in this country, and those investors are also surprised by what is happening here. I deal with many such investors, and they all say that there is a lack of support for long-termism, expansion and innovation in Britain.

I am pleased that the science capital budget is protected, and I welcome the removal of the cap on student places. Equally, the reduction in corporation tax and the permanent investment allowance are positive steps. Another key to encouraging investment is a highly-skilled, productive workforce. The British skills deficit is nothing new. The solution has eluded Governments since the abolition of the industrial training boards over 30 years ago.

We have had many quangos, from TECs to the Learning and Skills Council, but the skills gap has remained the same. This is because until skills training is driven and funded by industry, it will be poorly targeted. That is why I strongly support the Budget announcement of a statutory apprenticeship levy. When I was a graduate apprentice there was a levy on my company, and that was the reason why some of the training that occurred there was wonderful. I first called for a graduate levy in this House eight years ago. If set at half of 1% of payroll, the levy would provide £2 billion for skills training each year. As a good Labour man, I note this is more than business will get from the proposed corporation tax cut.

The Government should not fudge this. If businesses benefit from reduced corporation tax, they should contribute to improving productivity. Industry should help to design the levy but it must not be delayed or watered down. A target of 3 million apprenticeships has been set. Without the levy, only cheap, low-skill apprenticeships would be offered, as is happening now. This means that the funding from the apprenticeship levy is essential to transforming technical education in Britain. The Government should set out the detail of their plans and how they will be delivered. This is a question not only of apprenticeships but of using them to reshape technical education. Many businesses sponsor the university technical colleges of the noble Lord, Lord Baker. A similar partnership is essential throughout post-16 education.

I mentioned the automotive sector earlier, so let me give a practical example. The British car industry is competing against one of the best-trained and most innovative workforces in the world in Germany. So alongside a multibillion-pound R&D budget, invested largely in British engineering, Jaguar Land Rover is forming for the first time its own learning academy, offering integrated training from apprentice to postgraduate level. JLR has 3,000 craft apprentices and 1,100 higher apprentices. This year alone it is taking 450 graduates and over 300 apprentices. These need training and skills in many different disciplines and specialities. Companies like Dyson, Rolls-Royce, JCB and BAE Systems also use a range of the best FE colleges and universities to provide technical education for all employees. The apprenticeship levy will create demand for quality technical education from firms that cannot invest on the scale of these manufacturers, especially those down the supply chain.

That will require a transformation in skills supply. So, ahead of the levy, we should be challenging universities, colleges and business to design technical education programmes together. We have many outstanding science and engineering departments in Britain. These should be beacons of quality technical education. As we at Warwick do for JLR, universities should accredit quality and ensure multidisciplinary capability. FE colleges can ensure that technical education is accessible to all, and industry must demand that these programmes are built on real business need—and pay.

The Government should not waste money creating new institutes of technology or national colleges for apprenticeships. Instead, under the levy, industry should choose which programmes to support, from GCSE to PhD. The best would then expand organically. This bottom-up system would ensure that every worker could expect their employer to give them worthwhile skills and qualifications, and that would be a major boost for future productivity.

The Budget had many flaws but I am glad of the focus on productivity. For that, the Chancellor and the Business Secretary deserve praise. Now, the question is whether their plans will match their rhetoric. They have set themselves the right test and it is one we must hope they pass.