Budget Statement

Lord Bhattacharyya Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I remind the House of my interests as declared in the register, including my chairmanship of the Warwick Manufacturing Group at the University of Warwick.

Last week, the Chancellor unveiled a Budget that lacked any sense of theatre. There was no big reveal and no rabbit from the hat, but what a relief—we have had enough shocking plots and twists in the last year, and producing a rabbit from the hat usually means sleight of hand is involved. However, there was drama when MPs realised the Chancellor had freelanced a tax on freelancers. He took a lot of stick for this, but he is right: the current tax gap between the self-employed and PAYE taxpayers is unfair. The Budget was not dramatic because the economy is, apparently, gradually recovering. There is good news of course, but it is coming largely from consumer spending and increased debt, in turn driven by low interest rates, currency devaluation and high property prices.

I think we all know what is wrong with that picture, but why is it we have failed to address the long-term issues which prevent more sustainable growth? They are well known—low productivity, poor skills, low innovation, weak business investment—and I am pleased the Prime Minister is addressing these issues with an industrial strategy. I was relieved that both the Autumn Statement and Budget reaffirmed that commitment, so it was not a flash in the pan.

I have called for an industrial strategy for many years, sometimes in this House, but there has always been a perception that this meant picking winners. That is a gamble, not a strategy. Instead, we should create a framework to support growth, give new technologies time to prove their market value and help people acquire the skills new technologies need. This is the basis of Greg Clark’s new approach as Minister for Industrial Strategy. We see the first results in the budget decisions from the national productivity investment fund. Fast mobile and fibre data connections, along with new roads and energy networks, will increase returns for investors in Britain.

Just as welcome is the new support from the industrial strategy challenge fund for battery research. Climate change is a defining global issue, while, locally, increased air pollution—especially here in London but in all the big cities of the world—puts a burden on the NHS. Batteries are essential to a breakthrough in low-carbon transport, and backing them is a sign Ministers are listening to the research agenda of both industry and academia. We need to ensure business is involved as these research pathways develop, which is why I support the Budget announcement on mid-career research fellowships. This is a tool Innovate UK can use to build strategic partnerships with the next generation of business leaders. Will the Minister confirm that the distribution of fellowships will be Innovate UK’s choice?

As a graduate apprentice myself, who became a professor of engineering, I know technology transfer is difficult if short-termism dominates corporate culture. It is next to impossible if you have a skills shortage too. In this country, that has been a perennial problem, but we can do it—in the last 10 years, the automotive sector, having got the skills base and invested in research, has done it. It is continuing to do it and is now an example all over the world, including Germany, of how Britain has changed in this sector. The Budget announcements on the industrial strategy address this. T-levels offer a guarantee of quality and business relevance in vocational and technical education. I am particularly glad that this support will be offered to adult learners, as vocational education must be lifelong to be effective. I have been calling for simpler and higher-status technical qualifications since I arrived in this House. We have had skills systems so complex and incentives so distorted that I sometimes wondered whether industry was involved with this policy at all. The courses seemed to have nothing to do with the world of work.

To put power in the hands of students, I recall suggesting student maintenance loans for technical courses back in 2010. I am beginning to feel that someone has been listening. I was delighted by the introduction of the apprenticeship levy last year. The Budget is the second stage of this skills strategy for industry. Of course, it will take time to deliver real change, but with academies, the apprenticeship levy, the thousand doctorates in applied research and mid-career research fellowships we now have the outlines of a technical education system that offers student support and quality courses from UTC to PhD.

There is, of course, much more to do. I urge the Minister to open up maintenance loans to technical students doing high-level courses at any good education provider, not just the institutes of technology and national colleges. In the last Budget, the Chancellor announced an apprenticeship centre that would create 1,000 apprentices by 2020. We have already got 500, in partnership with many companies throughout the country. If we stick to our guns and do not change, I think we have a chance of fixing the problem.

The Economy

Lord Bhattacharyya Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I thank the noble Lord, Lord O’Neill, for securing this vital debate and declare my interest as chairman of WMG at the University of Warwick. I also pay tribute to the noble Lord, Lord O’Neill—or rather to Lord Peston; the Minister is still alive. We used to have great discussions on the role of manufacturing industry and how it declined.

Economic policy debates often focus on the crisis of the moment. There is an entirely reasonable demand for an equally immediate response to each threat to jobs, communities and businesses. Yet, when we examine the causes of the crisis, we discover that they are complex and often a result of our own previous decisions on supporting, taxing and regulating our industries. This was the case during the financial crisis, when our history as a trading nation, our reliance on financial services for tax revenues and a boom in global markets all combined to create overconfident, underinformed finance houses. These convinced both Governments and themselves of their perfect wisdom; therefore, both prudential regulation and commercial risk management became deeply unpopular. We saw where that led.

Equally, to understand the challenges of the British steel industry you must begin with the legacy of decades of underinvestment in capital, skills and product research, then consider the impact of high energy prices and business rates. The Government have acted on the immediate crisis caused by a glut in supply, although we can debate the extent of the support on offer. I am hopeful that we will still be able to find a solution to prevent the further decline of the steel industry. Having brought the company to this country, we should somehow or other find a solution. Yet the truth is that many of the root causes of the current decline could have been dealt with well before the sharp fall in global steel prices. This would have required a forward-looking industrial policy that created a level playing field for domestic steel makers against overseas competition, achieved competitive energy costs and supported local investment in plants, infrastructure and product innovation. The lack of such a strategy made us comparatively weaker when an era of global oversupply and artificially low prices arrived.

To change this familiar story we must understand that decisions on whether to invest in plant and where to conduct technology research are complex, involving factors as varied as land use, skills, the science base, planning and infrastructure. To encourage investment, therefore, we need integrated local collaboration which brings all this together to create an ecosystem of innovation, skills and investment. That is how inward investment is done. One reason why inward investment has slowed down is that there is a lot of anxiety outside that we have lost that—and Brexit has a lot to do with it.

It is no good government just putting money into equipping centres if there is no industrial pull or no room for businesses to grow locally. This requires a strong dialogue between industry, universities, government and councils. We have seen this approach work in Coventry’s recently announced “Smart Motor City” plan, which has £500 million of private business investment. It will expand the local skills base, attract new firms to the area and support local businesses and jobs. That is just the start. It will attract further inward investment in the near future, and we anticipate that it will lead to £3 billion of investment over the next three years. Therefore, a forward-looking industrial strategy both delivers a fairly regulated market today, and drives collaboration to support the investments that will underpin growth tomorrow.

Sadly, the final element, despite many White Papers and consultations, is our long-term failure to deliver a comprehensive industrial innovation strategy, nationally or locally. However, we should consider the Innovation Report. Research published this month shows that higher business innovation spending is central to long-term growth. The IMF has examined global private sector innovation and concludes that in economies like ours, increasing business R&D could lift GDP in the long term by 5%. Yet despite this clear link between commercial R&D and long-term growth, British business investment in innovation has declined from 1.3% of GDP in 1990 to just over 1% today. Businesses in Japan and Germany invest two to three times as much in innovation as businesses in the UK. Indeed, the only significant increase in private UK R&D spending in recent years has come from overseas companies. When this has happened, the results are impressive.

Take JLR as an example. Within five years, it now has 42,000 employees and more than 200,000 indirectly employed employees. It spends £3.8 billion on R&D each year, and you can see what happens if you do that. Britain does not have a problem when it comes to innovation; it is just that the Government do not do much about it. However, the motor industry, combined with Innovate UK’s support for collaborative research in, for example, lithium-ion batteries, has attracted enormous private sector investment from overseas investors and the UK supply chain. Where co-ordinating small sums of money triggers a train reaction, the results are clear: record levels of production and thousands of new jobs.

So why is this sector the exception, not the rule? To be fair, there have been many steps in the right direction. Under Labour, R&D tax credits and investment in scientific research were positive. Vince Cable’s industrial bank was an admirable attempt to address the gaps in industrial financing. The apprenticeship levy and support for entrepreneurs stressed by current Ministers are praiseworthy. But these steps have been piecemeal and provisional; we need a comprehensive approach.

First, we need to increase dramatically business innovation spending. This is especially true for small businesses, which face real constraints on financing innovation. Social benefits from private R&D are as large as the commercial benefit. That is why the IMF argues that we should effectively double the value of the R&D tax credit. Alongside tax-based support, we should expand grant and loan support to improve the quality and breadth of private sector R&D. It is crucial that this work be done in collaboration with academic researchers, as our strong scientific research base will stimulate private sector innovation and give it rigour. In Britain, we have a world-class scientific research community, yet the US, Korea and Japan invest two to three times as much as the UK in public sector applied science, which has created a private sector that invests multiples of our spend in commercial innovation.

Through bodies such as Innovate UK and industry groups such as the Automotive Council, as well as knowledge transfer networks, the Government must use our strength in science to develop a private sector committed to growth through innovation, investment and collaboration—in other words, a real industrial strategy. That would help increase our national wealth, spread prosperity more widely and help build a broad-based sustainable economy.

Economy

Lord Bhattacharyya Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I declare my interest as chairman of WMG at the University of Warwick. I thank my noble friend Lord Haskel for this opportunity to look beyond austerity.

In politics, current issues can obscure future opportunities. Ministers must have sweated over their deadline to offer 40% budget cuts last Friday. We have had a few pressing issues to absorb us on these Benches too. So it is a pleasure to be able to think of the future.

In the search for growth beyond austerity, we must look beyond our own borders. This may not feel comforting; we know the problems of the eurozone and now fast-growing economies appear unstable as well. Yet for all the headlines, China is still growing. Domestic retail is up 10%, innovation spending is surging and infrastructure spending is a quarter of a trillion dollars. Yet our exports to China are just 1/20th of our total. So why, as the EEF says, are half of our manufacturers and the Government concerned about China? It is not simply exchange rates—Chinese firms now produce quality products and are stronger competition, as we have seen in the automotive sector. Western growth depends on partnerships with economies with expanding domestic demand and quality exports, so we gain from trade and investment.

The latter is crucial for us. British capital formation is behind that of our competitors—just 17% of GDP. Our infrastructure spend has lagged the G7 for three decades. Our science base is excellent but business R&D is well below the EU average. Where will we get the resources to change this? Trade is welcome but British goods exports will be only a small part of our economy in the medium term. We do better on services, despite handicapping ourselves with restrictions on our premier education exports—or degree courses, as we usually call them.

The best strategy is to attract inward investment. A good parallel is Japanese firms in the 1980s. They wanted to expand into Europe, so there was a real commitment to securing that investment for Britain. At WMG, we worked with Ministers and unions to offer what Japanese companies needed. As a result, Britain secured one-third of all European FDI. That did not happen just in the 1980s. Foreign firms created more than 1.5 million jobs in the last decade.

Today, we need to commit to getting investment again. Hitachi in Durham shows what can be done. It seems that we are to spend two years discussing leaving Europe. This is a real risk to growth. We must resolve that quickly. If securing investment is our external priority, our internal need is to improve productivity. The CBI and the TUC are not soulmates but both endorse Krugman’s view:

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

The Government agree. On high-speed rail, skills, science, the northern powerhouse and the Midlands engine, their agenda is attractive.

There is consensus across politics. Last week, Chuka Umunna and Vince Cable gave support to policies such as the apprenticeship levy, protecting research funding and the Business Bank. But, as in the 1980s, delivery is what counts. Increasing innovation spend requires more work than a tax cut. On infrastructure, it is easier to review than to decide. We need an infrastructure commission to get projects agreed, as Sir John Armitt has proposed. While we must demand business investment in skills, it would be a mistake to cut FE spending before they do.

The summer Budget had good strategies. There are rumours that the spending review will show slow progress in the winter. I hope that the details of November will match the ambitions of July. If they do, we will all be more confident in our economy beyond austerity.

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.

National Infrastructure

Lord Bhattacharyya Excerpts

Thursday 22nd January 2015 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I thank my noble friend for securing this vital debate. I meet global business leaders regularly and they all agree that Britain must improve its infrastructure in order to attract inward investment. From China to Holland, they see what good infrastructure achieves.

British business also says that we need to improve. Some 60% believe our roads are poor. Five years ago, the cost of road congestion was £2 billion a year. Yet, after the last election, many road projects were mothballed in the spending review. Capital spending on roads fell by around a half. Now the Government boast of major new investment. I welcome these projects, but all it means is that projects such as the A21 are back on again. It demonstrates that we do not think long term. In fact, our basic weakness in this country—whether it is investment in industry or in infrastructure—is all associated with short-termism. This has consequences. As KPMG has said, foreign investors are frustrated because,

“there aren’t projects to invest in immediately”.

We know there is a better way because we put huge effort into creating long-term consensus on projects such as the Olympics or Crossrail. That needs to be systematised in our approach to all infrastructure planning and is why I strongly support my friend Sir John Armitt’s proposed national infrastructure commission. It is, to quote the Spectator, an idea,

“good enough for George Osborne to steal”.

My noble friend has set out how the commission would work. I will make one additional point. Giving an independent body authority to assess infrastructure needs would not reduce the power of elected Governments. Rather, it would give Ministers a power that they do not have already—the power to choose. One of the big problems of the other infrastructure bodies that noble Lords have mentioned is that they become quangos. That does not have to be the case. They become quangos only through the authority given to them by the Government.

Infrastructure assessments would create a better understanding of future needs and lead to stronger medium-term plans under departmental leadership. Ministers would have greater certainty about resources as their party would have been consulted on priorities from the beginning. Now Ministers only have a choice between the plans of their predecessors and further delay. With improved advance planning, Ministers could better set priorities and choose which projects should go ahead. They would get the power to deliver what they need and Parliament would be able to hold them accountable.

Some ideas make us regret that the other lot got there first. Once the National Audit Office, Bank of England independence and the Office for Budget Responsibility were established, they seemed common sense. A national infrastructure commission is the next such proposal. The Government still have time to steal it. I urge the Minister to take this opportunity.

Young People: Alternatives to University

Lord Bhattacharyya Excerpts

Thursday 23rd October 2014 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I congratulate my noble friend Lord Monks on securing this important debate. Along with many noble Lords speaking today, he deserves great credit for this issue having moved to the top of the political agenda. I declare my interest as chairman of Warwick Manufacturing Group at the University of Warwick. A university chair may seem an unusual interest to declare in this debate, but WMG has a strong focus on those who do not traditionally enter higher education. These young people can achieve extraordinary things. I think of Chris Toumazou, who left school at 16 without enough CSEs for sixth-form college, and has since progressed from City and Guilds to Regius professor. Although exceptional, his career demonstrates the transformative potential of technical education. As many noble Lords have said, we in Britain are, sadly, far behind our global rivals in realising this potential.

This is not a new problem. The Feilden and Finniston reports, and many others, said the same thing. Worse, as the Secretary of State, Vince Cable, has acknowledged, over the last 30 years,

“there has been a hollowing out of our post-secondary provision”,

against even that poor record. Too few young people are getting a good technical education and moving from there into well paid work. Today, businesses fear having to use scarce resources to train young workers in everything from basic literacy to technical skills.

Where then will we find the 830,000 engineers who, as the noble Lord, Lord Baker, just said, we need to replace retiring technicians? I do not want him to blush but one solution is strengthening technical education before 18. Technical schools were the orphan of Butler’s tripartite system. The university technology colleges set up by the noble Lord, Lord Baker, now give us hope and a chance to rectify that mistake. This autumn, we at WMG opened our first UTC, with a curriculum designed by the university and supported by leading engineering firms such as Jaguar Land Rover. Jaguar Land Rover requires another 20,000 technician workers in the next five years and we cannot find them. We have recently received government permission to open another in Solihull. Businesses support the academy because they can see how it will prepare students for a career. Parents are enthused because they see the quality of education their children get from a top university. I believe resources currently dedicated to free schools should be redirected to extending the UTC programme, as a first step in restoring technical schools in the educational pantheon.

Once these students have reached 18, they need a clear path to a widely recognised vocational status, such as the German technical engineer. Today that path is hard to find. We have seen a 40% decline in the number of people studying for HNCs, HNDs or foundation degrees. I would not mind if this was the result of limits being put on these poor-quality courses. Sadly, we have seen falls in fields such as engineering and computing, precisely where we need growth.

Changing this requires a new approach to student funding in further education. What progress has been made since the Secretary of State agreed to reconsider student funding for quality FE courses? Will the Government commit to expand advanced learning loans to under-25s? To be fair, the Government are keen to support apprenticeships, as the Prime Minister’s announcement of 3 million apprenticeships demonstrates. However, increasing the number of apprenticeships while degrading the brand should not be a consequence of a focus on large numbers. We must prioritise extending the number of higher and advanced apprenticeships for under-25s. The key to achieving this is a greater partnership with small and medium-sized businesses. The Holt review showed that only one in 10 SMEs offers apprenticeships. The proportion offering higher and advanced apprenticeships is even lower.

To offer quality apprenticeships, smaller businesses need support to impart quality skills, with a curriculum that they own and help deliver. We therefore need to improve the skills provision of FE colleges and their reputation with local businesses. This is essential if we are to deliver courses that employers will value, pay for and send their young workers from the factory floor to college to complete.

Achieving this shift is a challenge not only for the Government, but for my own sector. If we want to change vocational learning, companies, FE colleges and universities must work together to give technical education a higher status. At WMG we do this by supporting modular degrees designed with employers, so apprentices can learn at their own pace and companies pay their full university salaries for that to happen. This creates broader access to degree and sub-degree courses. There is huge demand for these programmes, and the potential to expand such courses is massively clear, whether through FE colleges, in workplaces or online colleges.

Personally, I prefer the former two options, as they give a greater prospect of quality control and student interaction. In such a model, further education colleges would benefit from closer integration with universities in providing courses that have high status with students. Employers would welcome universities genuinely interested in helping them give greater opportunity to their workforce. Universities would be foolish to miss this opportunity.

[Lord Baker of Dorking]

Before the noble Lord sits down, may I give the House an opportunity to recognise the enormous contribution he has made to technical education in our country? Through the Warwick Manufacturing Group, he has driven forward the reputation of Warwick University to become one of the best universities in the world. He has also supported, I am glad to say, the university technical college, opened only last month, and he and I will visit it tomorrow. I thank him for his support because Jaguar now wants a second one. His personal contribution in the whole scale of technical education is quite remarkable.

--- Later in debate ---

[Lord Bhattacharyya]

I thank the noble Lord very much. Building a better bridge to career success via technical courses is the only realistic prospect for student expansion. That means thinking in radical ways about the nature of vocational provision, from recruitment to integrating work and study.

I started by mentioning Professor Chris Toumazou. If his story tells us anything, it is that in the forgotten half of our young people we will find the talent, ambition and capability to transform our nation. We must not neglect their potential.

[Lord Newby (LD)]

My Lords, I remind all noble Lords that this is a time-limited debate. When the clock hits “6”, it means that the speaking limit has been reached. The consequences of speakers going over their time is simply that the Minister will have significantly less time to reply to the points that they have raised and the questions asked of her.

Economic Prosperity and Employment

Lord Bhattacharyya Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, I thank my noble friend Lord Haskel for choosing such an important topic for this debate. He is a passionate believer in manufacturing and technology. I declare an interest as chairman of Warwick Manufacturing Group at the University of Warwick, where we have worked for three decades to deliver growth, both at home and abroad.

It is vital to remember the positive difference the previous Government made to our society and economy. Since 1997 we have seen huge improvements in the infrastructure of the nation in rail, schools, hospitals and science. If we had not made those investments, our public realm would have resembled that of a third-world nation. The Labour Party should be proud of those achievements. There are problems, of course, but real successes too. For example, the importance of the science budget is reflected in the current Government’s decision to protect that funding. Naturally, there is a need to go further. We have already heard about the need for infrastructure spending as a driver for growth and I strongly support projects such as HS2. A single driver such as HS2 will create not only a different mindset among industrialists throughout the world but also employment. I also support innovation policies to create a more broadly balanced economy.

We can learn, too, from fast-growing nations. I often visit China. On a recent trip I saw that when growth faltered, the Chinese Government announced 25 major rail projects. They also announced further investment in innovation, aiming to surpass American R&D spend in the next decade. This approach creates a framework for long-term growth, encouraging business investment and increasing the likelihood that jobs created by these businesses will be sustained over a period of time. Here in Britain similar policies are vital, not least for the many young people who face long-term unemployment if there is little growth. Of course, Britain faces real financial constraints. This means we need a better understanding of the impact of our policies.

The real question is not whether government should contribute to economic growth, but how effectively it makes that contribution. I am reminded that the original title of Lloyd George’s Yellow Book of 1928 was Britain’s Industrial Future. Since then we have had many such mantras, such as national champions, white heat, sunrise industries or industrial activism. All of them have agreed with the fundamental judgment of the Yellow Book on industrial policy, which was:

“There is no question of principle at stake but only one of degree, of expediency, of method”.

A focus on expediency and method should make us sceptical of grand claims for any growth policy. As Karl Polanyi said of the industrial revolution:

“No one had forecast the development of a machine industry; it came as a complete surprise”.

Similarly, no one could have forecast what is happening today with the digital revolution.

Governments can never guarantee, or even predict, disruptive innovation. Instead, they should focus on incremental change, supporting infrastructure and innovation, thus creating a framework in which innovators prosper. This means better understanding of what government does well and where it must do better. In this spirit I propose a practical change to encourage the effectiveness of growth policy. It is simply that we commit to a higher standard of evaluation of public policies to support growth.

The noble Lord, Lord Haskel, rightly proposes enabling institutions to support growth. We also need an evaluating institution. All too often—whether in RDAs, LEPs, research councils or government departments —a policy is announced, a programme is delivered, the impact is evaluated by a consultancy firm, a number is put in a press release and then it is ignored. Frequently, bodies responsible for spending money, whether research councils or the Technology Strategy Board, define their own impact and decide if their objectives have been met. As Professor Henry Overman of the LSE said of RDAs, many of which have created important growth in their regions, you can read thousands of pages but evaluating them is very difficult, unless the current Government come in and get rid of them. The issue is not that projects have performed well or badly but that too often we do not know how they performed at all.

It is time that we had a national impact office with a duty to monitor the effectiveness of all government policies to support growth in the real economy. That happens in other countries. Such a body is crucial, especially if we are to embrace devolution in growth policy, for example with LEPs. As the noble Lord, Lord Heseltine, pointed out, the ability to share best practice and identify where things are going wrong is crucial. How can we do this without a neutral body examining what is best practice?

I have always been a passionate believer in the positive role that the state plays in industrial policy, but all good engineers know that it is only by critically evaluating the strengths and weaknesses of any past design that you gain the knowledge to help you do better in the future. We should be absolutely fearless in assessing which policies deliver growth. That is what we should be evaluating in future.

Health and Social Care in England

Lord Bhattacharyya Excerpts

Thursday 11th July 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, it is a privilege to speak in a debate led by the noble Lord, Lord Patel. The noble Lord spoke with his customary wisdom. I have learnt a lot discussing medical problems with him.

There are many healthcare experts speaking today. I am a little more of an outsider. From my perspective, it seems that we constantly read of reports, inquiries and investigations into the problems of our health and care services. Whether it is care assistants, inspections, waiting times or long-term care, every day seems to bring a new story about how our health service is struggling.

Of course, when you consider the great changes of the past 60 years, it is remarkable how the NHS has met the health needs of the nation, and done so in a very cost-effective way. However, that does not mean that this will continue in future. Just this week, we saw how health and social care funding faces three major pressures. Just 24 councils now offer adult care for those with moderate needs, and national eligibility standards will restrict this further. The cost of long-term care will expand significantly, with Ministers this week telling the insurance industry that it must fill the gap left by their proposed cap. Finally, as we heard this morning, NHS England faces a £30 billion shortfall by 2020, with the NHS director for patients saying:

“We are about to run out of cash in a very serious fashion”.

If I did that in my industry, I would be bankrupt.

Each of these tensions is a major challenge to the aim of a comprehensive, universal health and care system. So what can be done? The truth is that if we want good, comprehensive, universal care, we will have to find a way to pay for it. The obvious route is taxation, whether direct or in the form of a levy or giving tax benefits to private health insurance. Yet such new taxes will be hard to sell to the public. Why? Because while the NHS generally delivers good care for a reasonable cost, many patients feel that social care is of a low quality. Others have witnessed inefficiency and poor treatment in their local hospitals. They will not be content to see taxes go up simply to pay for more of the same. Of course, for more management consultants, not hospital consultants, that would be fantastic. So we must demonstrate how we will improve our care system, not just fund it.

To do so, we must develop new skills and structures for workers throughout the National Health Service. I have a personal interest, as my wife has been a midwife and a tutor. She knows first-hand how better and up-to-date training and career development for those on the front line can transform patient care. However, many of our health career structures and much of our training still seem stuck in the 19th century. From care assistants to consultants, from matrons to health technologists, we need to rethink career development in the health service totally. Even our definition of what a doctor is will have to change in the future.

One reason we need to change how we develop our people is that technology is radically shifting how patient needs are identified and treated, as the noble Lord just mentioned, in everything from social care to heart transplants. To take just one example, the Scripps Research Institute is developing embedded sensors in the bloodstream to alert users if they are at increased risk of heart attacks. Such advances create new treatment routes for those seeking better health, which means that new ways of offering care will be needed, such as advising people at risk on how to improve their health, and monitoring their progress. Is that a role for a doctor or a nurse, or a new role entirely?

Technological changes also mean that individuals will seek greater control over their care. Therefore, despite the promises of consolidation of services, there will be more demands, so although the service improves, the savings will not automatically follow. Yes, we should expand personal budgets so that people in continuing care can choose their care packages. But we should go further, removing the divide between health commissioning and social care to create whole person care. This will raise some fundamental issues about what is included in universal healthcare. Does it make sense that we offer little support to people who wish to maintain good health, but expect no contribution from people who visit their GPs 10 or 20 times? The answers to these questions will be controversial, but they must be found if we are to find an equitable, affordable way of meeting expanding expectations and increasing routes to access healthcare.

To address these challenges we need major innovation in people, technology and funding. That will be difficult and controversial. However, if we tackle them head-on, we will be as bold as a Butler in Education, a Beveridge in welfare or a Bevan on the NHS. That is an ambition well worth fighting for.

Economy: Growth

Lord Bhattacharyya Excerpts

Thursday 16th May 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, I congratulate my noble friend Lord Soley on securing this debate on economic growth. We all have an interest in this subject, but I should declare my interest as chairman of the Warwick Manufacturing Group at the University of Warwick. For more than three decades, we have been working very hard, helping companies to grow. A week ago the gracious Speech pledged that the Government would focus on, “building a stronger economy”—fine words, even if they are undermined by the recent rows about referendums. Britain’s economic situation is extremely weak. Yes, we have avoided a triple-dip recession and it may even be that the double-dip recession will be revised away, but that is little to boast about. After five years of recession, our GDP remains 2.6% below where it was before the crash. Our productive sectors have struggled, with manufacturing gross value added down 10% over the past 10 years. Construction has fared worst of all, falling into deep decline in 2012, and it is now almost 20% down on 2008. Nor will foreign growth rescue us. The European Commission, the IMF and the OECD all say that the eurozone will decline this year. Finally, devaluation cannot solve our problems. Sterling is almost a quarter below its peak, but many exporters are facing increased costs from raw materials and components, which means that we are not benefiting from the short-term competitiveness we enjoyed in earlier devaluations.

Our problems are deep and significant and they require great attention, but if we take the right decisions, they can and will be resolved. I have spoken many times in this House about the need to take a long-term view. The challenges we face have arisen as the result of years or even decades of too little innovation, too little investment, undercapitalisation and not enough support for the physical and social infrastructure which can deliver lasting growth. We must all pull together to change this. Step by step and day after day, we must follow a steady path that supports innovation, investment and infrastructure. I am encouraged that the leader of my party and the shadow Chancellor speak regularly on these issues, and commissioned Sir George Cox’s excellent report on long-termism. Even the Mayor of London now talks about the need to take a long-term view on growth, but unfortunately the Government seem mostly to be focused on the tactical short-termism that got us into this mess. We will not get a recovery from immigration crackdowns and referendums.

To be fair, the Government are doing some good things, mostly at the urging of the Business Secretary. We share the aim that all young people should take up training apprenticeships or go into higher education on leaving school, and I congratulate the Government on pressing ahead with high-speed rail. It is politically difficult, but necessary. While the science budget is declining in real terms, the Government have at least tried to protect it. However, sadly, this is where their long-term vision ends. Despite all the talk about growth, I searched the gracious Speech in vain for a mention of science, technology or research. In the press briefing that accompanied the speech, we heard much about scraping the barnacles off the boat, but these issues are not barnacles, they are the materials from which the boat is built. I want our Government to take a practical, long-term approach to creating growth.

One way that can be done is by supporting reshoring, which when I put it in plain English means bringing back the jobs that left Britain due to globalisation and cheap labour overseas. In both manufacturing and services, rising wages abroad and technological innovation at home could mean that these jobs come back, and we should make such a return our priority. A recent RSA/Lloyds Banking Group report, Making at Home, Owning Abroad, argues that more than 200,000 jobs could be created through reshoring. The question is less whether jobs can come back to the West, but which countries they will return to. How can we encourage inward investors to choose Britain? The first way is through procurement.

In America, there is an expectation that those who get government help will return their back-office and IT functions to the US. That is why “Buy US” clauses have appeared in many bailed-out companies’ purchasing contracts. Today, a combination of informal pressure, immigration rules, tax changes and US wage competitiveness means that companies such as General Electric and General Motors are creating IT jobs in America, not in India. Indian outsourcing companies are facing tough times because of this. Their growth and profits are down, and the outsourcing market is projected to stagnate or even decline. Yet the UK seems to be uninterested in supporting the reshoring of its own money. The NHS spends millions of pounds on offshoring IT and data management. For example, half of the NHS shared business services staff are based in India. If we were to demand that such direct government spending was done in the home market, we would immediately create many hundreds of thousands of jobs in Britain.

The next rule of procurement is that it should act as a capacity and innovation builder for British business. Many people ask me, “Why can’t we have a Google or an IBM in this country?”. Britain is a small country. The reason those companies succeeded in the beginning was by growing in their internal market. Government procurement must be such that it helps small companies to create an internal market and then grow. If we use procurement to support innovation through a major extension of the Small Business Research Initiative, we would help UK businesses develop new products and services for both the home and the export markets. As I said, we are a relatively small country. We do not have the critical mass to support innovation in the domestic market unless we focus resources on it directly. This is needed to help small companies grow.

Next, we must transform our approach to skills so that investors want to create jobs in Britain. The government response to the Richard report was full of warm words but kicked the question of funding for skills into the long grass. We need to find a better response. We do not need government to spend more but our businesses to invest in their people. We should create sector training boards, with the power to issue training levies, as they do in construction, so that all firms have a common incentive to invest in their employees. If we approach skills in this way, we might be able to rid ourselves of our cumbersome skills bureaucracy. Some object that this means a new tax on business. I understand this concern, but if firms train their people they will more than get that money back.

Perhaps I might make a counterproposal. I am no fan of corporation tax. As the IFS says, much of corporation tax is,

“passed on to workers in the form of lower wages”.

Ideally, I would like to see corporation tax fall to 15%. Of course, that would be expensive and people would argue that it cannot be done. So why not reduce or even abolish corporation tax for firms with a tax liability of less than £10,000 which are subject to sector skills levies? Such firms contribute only £2 billion of corporation tax receipts—less than 5% of the total—but they represent more than half the companies that pay the tax and their profit is essential to the future growth of Britain.

The next challenge is to help our businesses secure finance. At the micro level, I have much sympathy with the arguments of the noble Lord, Lord Young, in his report Growing Your Business. I agree that support for small business should be extended, with start-up loans made available to all entrepreneurs, as should the enterprise finance guarantee. But we need to go much further. As the noble Lord, Lord Young, says,

“when banks started to remove the manager from their branch network they inadvertently broke many of their links with SMEs. This has had a disastrous effect”.

I have long argued for a dedicated business bank with real scale, preferably with a regional or sectoral focus, so that lending decisions are made by bank managers who know their businesses. Such a bank could be focused on the sectors supported by innovation catapults, thus making investing in British innovation and British production in key sectors more attractive to both inward and domestic investors. I am delighted that my party has embraced this proposal as part of its policy review.

Next, if we are to reshore contracts in advanced sectors, we need to transform our overall innovation capability. This means reforming our research funding councils and boosting innovation agencies such as the Technology Strategy Board. We pride ourselves on being a great nation for science, but our real-terms R&D budget is declining and we are doing little to get the maximum economic benefit out of what we spend. I am pleased that our research councils are giving more attention to economic impact, but we have to do much more to ensure that the research we fund contributes to economic growth.

Let us compare our approach with America’s. In his State of the Union address, President Obama said:

“Our first priority is making America a magnet for new jobs and manufacturing”.

He announced a $1 billion investment in innovation institutes to encourage the return of manufacturing. In Britain we have to fight for years for an extra few million. Whether it is the huge American investment in innovation, the Canadian reform of research councils to make applied research their top priority or Germany’s Fraunhofer Institutes, KfW and Sparkassen, it is other countries that are trying to secure long-term growth through industrial innovation. We are far behind, and falling further. All parties share the blame for this, yet there are many on all sides of your Lordships’ House who regret these missed chances.

Outside politics, this agenda is widely shared. Last week I attended a seminar at the Royal Society, where scientists, entrepreneurs and business leaders discussed how to bridge the academic-industrial divide to support growth. For the first time the Royal Society has taken on that challenge. There is a real opportunity for growth here, if only we seize it. We should use procurement to stimulate demand and get scale for innovation; push firms to invest in skills, and give tax incentives to smaller firms; use business banks to support innovation investment in sectors and regions with high growth potential for reshoring manufacture and services; and refocus research funding and increase applied technology funding to encourage both inward and domestic investment in innovation. Of course, the obvious question is: how we can pay for such a programme? It is not easy but it could be done.

Today there exists a rare opportunity to borrow cheaply to invest for the future. We should take it. However, that will not last long and we will certainly need to be fiscally very tight for a long time. The key is gradually to switch resources from unproductive to productive spending—what used to be called the costs of failure. That means pay restraint, reducing welfare and housing benefits over time, and perhaps removing benefits from those on above-average incomes. It may even mean more co-payments for public services so people understand the cost of the services they use.

None of this will be easy, but if sustained restraint helps encourage the job-creating, technology-led growth we need, it will all be worth while. Our growth problems are significant and real. But by backing the skills, ingenuity and ability of our people, they can—and will—be solved.

Budget Statement

Lord Bhattacharyya Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, the Budget Statement was trailed as a Budget for growth. I declare an interest. As chairman of Warwick Manufacturing Group, I work with many international companies on their growth strategies. I have learnt that to achieve sustainable growth, you must think of the long term, not of headlines or short-term profits. The Budget reminded us how difficult things are for the British economy. It did not explain why Britain has found it so hard to recover. Of course there is the global crisis but others are navigating the storm more swiftly than Britain. Whether Germany, the United States, China or the Scandinavian countries, those with a record of long-term investment in R&D have more to offer growing markets.

Unfortunately, Britain’s investment in R&D is lower than the OECD and EU averages. It is even well below our own target. Britain is a small country. In order to survive, we must export. In order to export, we must have products and processes that are internationally competitive. That means that our core innovation implementation has to be very good, but it is very patchy.

Worryingly, the OBR said yesterday that business investment will increase next year by very little, yet it is only by encouraging innovation and investment that we will create sustainable growth. As I said, that requires long-term commitments on capital, research and infrastructure. Of course, there are positive policies in the Budget, from tax credits to corporation tax, but the steps forward are too small, and they do not cover enough ground. For example, the Budget talks about £1.6 billion for an industrial strategy, including the aerospace institute, but when you look at the detail you see that this money is over 10 years, and £1 billion of it is committed to just one sector. Surely an industrial strategy should include other sectors, such as the automotive industry and other key export drivers.

As I said, there are things to welcome in the Budget. Often, they are the signs of the Business Secretary trying to shake off the shackles of the Treasury. I have a very high regard for the Business Secretary and admire his efforts on all sorts of matters, including his recent efforts on apprenticeships. I understand that Dr Cable will seek to undo his ties again today, on the investment bank.

I welcome the news that capital spending is being increased. I also welcome the acceptance of the Richards report, asking Sir Andrew Witty to look at how universities and LEPs can work together, and the endorsement of the report of the noble Lord, Lord Heseltine, No Stone Unturned. However, when we look at the budgets allocated, the stones still seem pretty firmly in place, and even where they are being turned over, the projects will not happen until after 2015.

The Labour Party under Ed Miliband is developing a long-term policy agenda that goes beyond the noise of annual budgets to create a critical mass of policies to support sustainable growth, but it seems a shame that long-termism should have to wait until the next Labour Government. What more could we do to encourage investment today? We need to look at the structures that support commercial R&D in Britain. Offering businesses incentives to innovate is useless if there is no innovation capability for them to invest in.

To grow, you must build on your strengths. In Britain, we have outstanding academic research, so we should use that as our super-magnet to attract industrial R&D spending. We need to shake up the whole system of research funding so that it attracts new business funding from companies large and small. Today, the weight of government R&D funding is completely insufficient to support business innovation. The Technology Strategy Board is an excellent organisation, but its budget is far too small compared with the research councils, while the Higher Education Innovation Fund is nowhere near enough to shape academic research priorities.

Next, we need a procurement strategy that helps smaller companies invest in innovation and hence start-ups. In the United States, that is the biggest spur. How do we get small companies a market in order to grow? It is so very difficult for small companies to grow because the market is not there. The only market you can get is export, so government procurement should be a huge help for start-ups. That means the Small Business Research Innovation Fund must be made to work. The Chancellor’s aim to increase the SBRI budget from £40 million to £200 million by 2015 is welcome, but represents only a tiny shift in overall funding.

Finally, we should establish a “one-stop shop” approach for industrial innovation budgets, with a sectoral or challenge theme. I have long been an advocate for government demonstrators and grand challenges as a catalyst for innovation. The Government have identified eight priority technology areas and have allocated them £600 million of capital funding. However, there is always a temptation for such programmes to minimise industrial partnerships. Businesses are awkward customers for bureaucrats, refusing to fit neatly into boxes. We should make attracting industrial innovation funding central to our grand challenges. I believe all these government funds should require matching financial investment from companies, with a proportion devoted to SMEs, to ensure commercial research partnerships are at the heart of all our innovation policy.

Despite all the publicity, in truth the Budget yesterday changed very little. There was little to spend and no new plan. We saw a few tired rabbits come out of the Chancellor’s hat, but little more. If we are to grow, it is essential that we invest in our long-term future. That is the real agenda for transforming our economy. Yesterday, the talk was of mortgages, petrol and beer. The danger is that we neglect our future for the sake of these headlines. When Governments focus on the short term, Budgets become just another missed opportunity. I fear that after three years of bad headlines, this Budget fits that pattern. Everything worth while has been pushed back to after 2015. Perhaps the Chancellor had a premonition of the future. Despite the fine words, actually delivering sustainable growth has been postponed to the next Labour Government. We are hungry for that challenge.