Economic Forecasts

Lord Davies of Oldham Excerpts

Tuesday 17th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

I agree with my noble friend that we should try to deliver the best deal for this country that we can. Obviously, the analysis was based on a specific set of assumptions. They may have seemed sensible at the time but, with the benefit of hindsight, these things are always difficult. The Treasury also cited the uncertainty that a leave vote would cause, weighing on the economy, and it was therefore good to see certainty at the top of the Prime Minister’s list of objectives today.

[Lord Davies of Oldham (Lab)]

My Lords, not all facts are as rosy as the noble Lord, Lord Dobbs, suggests. In hard facts, are we not dealing with a significant depreciation of the currency and a consequent rise in inflation which will cause difficulty for those of our fellow citizens who cannot readily raise their incomes? Is it not the case, whatever the rosy view on the other side of the House, that despite the drop in the value of the pound we have the highest levels of deficit on our current account ever recorded, so not much has yet fed through to our exporters?

[Baroness Neville-Rolfe]

As a new Treasury Minister, I am very aware that I should not comment on currency movements, but we are very lucky in this country to have the independent Bank of England. It has an inflation target; we do not target the exchange rate. The performance of the economy has been stronger since Brexit than any of us feared with, for example, good household consumption figures recently.

Brexit: Economic Impact on North-East England

Lord Davies of Oldham Excerpts

Tuesday 10th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

My Lords, we want the deal we strike to give British companies the maximum freedom to trade, as the noble Lord has highlighted, and to operate across the single market. We are going to make the most of the opportunities that our departure presents, getting out into the world and doing business right across the globe, while at home, including in the north-east, building a Britain that works for everyone.

[Lord Davies of Oldham (Lab)]

My Lords, I welcome the noble Baroness to her new responsibilities and I look forward to a number of engagements across the Dispatch Box. Let me begin with a straightforward question. Was the Government’s approach to Nissan and the assurances given to that company the only shaft of light for the north-east at present in terms of Government policy? Was it just a spasm on the Government’s part or do they have a policy for the car industry and manufacturing generally—in fact, for the economy of the north-east? The region has so much to lose because of its commitments to exports to Europe unless the Government get some of these issues right.

[Baroness Neville-Rolfe]

As noble Lords will know, I am a glass half full person and I think that the arrangements for Nissan and the automotive sector were a very good day for the north-east. The answer is that our door is always open to talk to the sector to give it the long-term assurances and strategy it wants, and that is what we have said.

Finance Bill

Lord Davies of Oldham Excerpts

Tuesday 13th September 2016 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, it can sometimes seem a little lonely for a Minister addressing the House on issues such as the Finance Bill and the Budget. He sees before him a significant number of Members of the Opposition, some of whom have had experience in high office, including my noble friend Lord Darling as Chancellor, but he may not have too much support behind him. It was interesting today to see that the Minister had no support behind him: there has not been a single speaker from his Benches. Of course the House is reasonably full, reflecting the importance of this debate and the issues—

[Lord Forsyth of Drumlean (Con)]

It is true that there have been no Conservative speakers, but that is because those in the Conservative Party are really enthusiastic about their leader, who addressed them at the start of this debate.

[Lord Davies of Oldham]

My Lords, that is a convenient excuse. I have no doubt that it is important to prioritise attending such meetings. However, the noble Lord will also recognise that a prime duty of Members of this House is to attend debates and actually engage in them, particularly in circumstances where the Opposition will have some trenchant things to say about the main subject of the debate. But there have been no speakers from the Minister’s Benches. That may also be a reflection of the fact that the Government Benches have largely decided that the last Budget is wholly irrelevant to our present situation.

Several noble Lords have made that point quite explicitly. Even the noble Baroness, Lady Kramer, indicated that she had difficulty seeing the significance of the Finance Bill, which now belongs to the past and which was introduced by a previous Chancellor—a Chancellor who conspicuously failed in the significant tests that, had he been providing any supervision of the economy, he ought to have met. The deficit was postponed from 2015 to a putative surplus in 2019 and 2020. Growth, which he put forward in 2010, fell considerably below his optimistic forecasts. He even failed to match the growth levels that my noble friend Lord Darling presided over when he was Chancellor. Living standards for a very substantial section of our population have fallen. There have been no pay increases since 2010 and inflation has taken its toll. I imagine that, at this stage, members of the governing party are happy to see the back of the Finance Bill and its objectives.

Nevertheless, we have to recognise one absolutely critical aspect of the Finance Bill and I want to itemise that. The Government emphasised that cuts in corporation tax and capital gains tax would help investment in the economy and help to boost British industry and enterprise, but there was never a reference to any deleterious effects. This is a manifestly unfair Finance Bill. It is asking ordinary people to sustain the cost of cutbacks in crucial areas of government expenditure while tax breaks are given to those among the wealthiest in our society.

We are critical of the Bill. We were critical of it in the other place and we are critical of its general propositions here. But of course the debate has moved on in several respects. This House had the benefit of a report introduced today by the chair of the Economic Affairs Committee, my noble friend Lord Hollick, who emphasised the fact that the Government had discreet weaknesses in their position over the subject of that report. We can all see the advantages to the taxation system of modernising the receipt of taxes, but the digital economy clearly presents enormous challenges for ordinary people. It is not the case that everyone in this country is completely au fait with how the digital economy is meant to work and who have the confidence to respond in those terms. But there is no indication that the Government have any real awareness of that. In the report that my noble friend commented on, that point was emphasised.

The report also emphasised that the Government pay lip service to the concept of tax simplification. It says positive things about the Office of Tax Simplification, but not what the committee emphasised, which was any suggestion of adequate resources for that office to be able to carry out its role. We recognise that the Government have some regard for the Office of Tax Simplification. They certainly accepted amendments to place greater emphasis on the role of the Treasury Select Committee in the other place with regard to personnel. But the fundamental point remains that the report sought greater resources for the Office of Tax Simplification. It wanted much more consideration of the way in which the ordinary taxpayer will respond to the digital revolution and it wanted greater consultation about the development of tax law so that matters should be simpler for the ordinary taxpayer. I hope that the Minister will address those points because they are an important part of this debate so ably introduced by my noble friend Lord Hollick.

The Minister also needs to respond to points made by my noble friends Lord Darling and Lord Hain. They emphasised the extent to which it is essential for the Government to change their order of priorities and develop a strategy for growth that enables us to improve what I know the Minister is concerned about—levels of productivity. They will not increase while we are trailing at low levels of growth. It is important for the Minister to respond to the fundamental issue that for the last six years we have had a great weakness in the British economy that no amount of concentration on reduction of debt has done anything greatly to assuage. That is why the Minister needs to respond to these crucial issues raised in the debate.

Noble Lords who subsequently followed my noble friends largely regarded the issues of the Finance Bill as passé and not part of the crucial issues of the debate about our economy at the present time.

Of course, we have moved into the fog of Brexit. We are grateful to the noble Lord, Lord Kerr, who sought clarification on some of the issues, the first of which is an indication of the timescale for when certain aspects will need to be negotiated. I have seen nothing from the Government that remotely approaches anything as definitive as that. Nor have I seen any recognition on the part of the Government of the point made by the noble Lord, Lord Kerr, when he said that it is important that those who are involved in determining our negotiations with the European community should acknowledge that this is an entirely capitalist economy. It is an exercise in which they will expect to get the best deals they can for themselves as much as we will strive to do on behalf of our people. That is a tough agenda, but I have seen nothing yet to show that the Government are facing up to it, particularly when one of the key figures of Brexit, the Secretary of State Liam Fox, attacks British industry for being more interested in playing golf than improving its business record.

These are serious issues which the Government need to take hold of very rapidly indeed, yet thus far we have had nothing but evasion when challenges are presented, and indeed they have been presented today with great force in this House. We all recognise the primacy of the other place when it comes to financial issues, but occasionally we are given the chance to debate the nature of the challenges in our economy. Consideration of the Finance Bill gives us no chance to amend or challenge it because that is the responsibility of the elected House, but as I say, we have a chance to comment on the economy and to point the way forward to a more constructive position than what obtains at the moment.

What we have now is obvious. We have economic failure on the part of the Government in previous years now allied to a decision by the British people to throw a great deal of our trading position into hazard. It is important that the Government should take every opportunity to clarify how they are going to go about the Brexit process. That does not mean that they should give away their negotiating position, but they should reassure people that they understand what the approach will be and how long it will take. Thus far, we have had nothing.

Economy: Productivity

Lord Davies of Oldham Excerpts

Monday 5th September 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, most of the independent measures of competitiveness would actually rank the UK among the highest in the world. On the first part of the noble Lord’s question, there has not been any official devaluation of our currency. It was a consequence of what happened, and in the context of what I said earlier, it is interesting to note that in recent days the pound has recovered somewhat.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is an honest man and he will recognise that we have had a chronic position with regards to balance of payments throughout the whole time that we have had a Conservative-led Government since 2010. He will also know that in this country the average Briton still takes five days to produce what the average Frenchman can produce in four days. In a period of increasing competition—as we are bound to find as we leave the European Community—how can we possibly make progress or expect to meet this competition with such appallingly low levels of productivity?

[Lord O'Neill of Gatley]

My Lords, I think I heard two questions from the noble Lord. I cannot resist saying that I seem to remember that the era of chronic balance of payments problems as described goes back to the 1960s, which precedes not only Conservative Governments; those of different colours were in town over that time. On the latter question, an important part of understanding the productivity issue in greater detail is that there is some evidence, which I have mentioned in the House before, that you have to be careful about bemoaning everything about our apparently low productivity performance because some of it is almost definitely the flip side of a very strong rate of employment. That is particularly the case in the context of making direct comparisons with France. It is an important point.

Wales: Economic Investment Projects

Lord Davies of Oldham Excerpts

Tuesday 12th July 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, I thank the noble Lord for pointing out the specific legal status of the EIB for those unfamiliar with it. It is the case that any change to the EIB’s shareholder structure or lending activity is a decision for member states. It is important that we pursue discussions because, as I am sure the noble Lord is aware, lending in the UK right now is at record levels, covering more than 30 different projects.

[Lord Davies of Oldham (Lab)]

My Lords, leading Brexiteers such as Michael Gove and Chris Grayling made it quite clear that Wales, as others, would benefit from the decision to leave the European Community. Can the Minister assure us that, given that Wales benefited from a surplus of £245 million a year from Europe, the Welsh will not be sold short by future decisions of the Government?

[Lord O'Neill of Gatley]

My Lords, the third repetition of the day. That specific issue will be a choice for the new Prime Minister. Many other parts of the United Kingdom are facing a similar challenge.

Economy: Overseas Trade Deficit

Lord Davies of Oldham Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, the numbers that the noble Lord referred to in the Pink Book are broadly accurate but I do not share his interpretation of them. As shown in the timely piece from EY yesterday, the number of jobs being created by foreign direct investment in the UK is substantial.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is extraordinarily complacent. Does he not recognise that the deficit on goods and services is the largest since the post-war recession of 2008, which affected the country so adversely? He is indicating that the Government have got matters in hand, but in fact we are approaching catastrophe as far as these figures are concerned.

[Lord O'Neill of Gatley]

My Lords, I hate to be a statistical nerd about these things, but I am staring at the data. Last year, our overall trade balance as a share of GDP was minus 0.20%. In 2010, it was minus 2.8%. As I said a few minutes ago, the trade deficit today is smaller than it has been for 10 years.

Queen’s Speech

Lord Davies of Oldham Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, my first task is to congratulate the right reverend Prelate the Bishop of Newcastle on her inspiring contribution. I have a very close friend who is a Geordie. I fear he spends rather more time at St James’s than at St Augustine’s, although he is a fairly regular churchgoer. I will certainly be able to give his spirits a little lift—and, by heavens, those who went to watch Newcastle United over the past season need more than a little lift at this stage—from the very good impression the right reverend Prelate made in the House today.

I have some sympathy with the Minister for having to reply to a debate as wide-ranging as this, particularly since, as he would expect, I am going to direct most of my remarks to the issue of the economy, when he is rather more a specialist on transport matters. On transport matters, I had anticipated that he would probably have a fairly easy ride; after all, HS2 was conceived under a Labour Government, was carried forward by a coalition Administration, is now making progress under a Conservative Administration and in due course, I am sure, will continue towards completion under a Labour one. However, I had not anticipated the noble Lord, Lord Framlingham, being so forceful about his opposition to HS2, and it may be that the Minister does not have such a cosy ride as he might have anticipated on that very important Bill.

There is no doubt that a Bus Services Bill is long overdue, although of course we will want to examine the details with some care. London has set the pattern for a way in which one can integrate transport in which buses play a crucial part. Everyone knows the joy of catching a bus in London: you are actually told when it is going to arrive, and it does, and generally you are able to find reasonable room on it because of their frequency. I do not have the slightest doubt, as the noble Earl, Lord Attlee, said in his strong argument in favour of the Bill, that authorities such as Greater Manchester can match London in terms of achievement in implementing the Bill once it becomes law and they have the ability to do so.

The problem is, of course, that the Government talk rather ambitiously about local authorities and the regions but then act more than a little meanly. You cannot have a northern powerhouse without effective resources allocated to it, otherwise it is just an expression and a form of words. At this stage I am not sure, apart from the general structure of what is meant to obtain, that the Government have the ability to put the resources into making the northern powerhouse a reality. It is noticeable that almost as soon as they announced the concept they were busy deciding to reduce certain rail projects that would have enhanced the situation. So the jury is out on that, and the Government will be watched very carefully on the question of the allocation of funds, particularly against a backdrop where the Chancellor continually claims that his big commitment is to reduce government expenditure and government debt. Not that he has been so hot at doing the latter; after all, he got only half way there by 2015, when he was meant to have completed the task. Four to five years’ grace has now been granted to achieve this absolutely prime objective. I do not think many people will cut him much slack if he fails on this scale again over the next few years.

The other aspect of transport that concerns us is the extraordinary delay in the most important transport decision of all—the question of aviation and the runway in the south-east. I had the same impression as the noble Baroness, Lady Randerson: here were the Government talking about space travel from Newquay, which was likely to happen somewhat earlier than a third runway in the south-east. I may be overpessimistic on this front, but it certainly does not do the Government’s reputation any good at all when such a critical decision has been stalled on, year after year. In addition, of course, every year they have a very good, persuasive argument—certainly a pretty self-interested one—for why the decision cannot be taken at that point. I do not think the country is prepared to countenance much more delay.

My noble friend Lady Jones raised crucial questions on a whole range of matters under debate today, which I therefore will not repeat. But I hope the Minister will respond—again, operating somewhat outside his normal brief—on the crucial issue of climate change. We all recognise that some progress was made on this issue before Christmas, but it is by far the most important issue that confronts not just us or Europe but the whole world. We are beginning to see illustrations of the failure to control that aspect at present in the measures that have been taken thus far, and it is essential that this is a major priority for government.

I make no apology for concentrating on the economy. The Government pride themselves on their various projects but they do not create the means to turn them into reality. First of all, it would help if the Government took effective steps to get their tax revenues in. From the very beginning I have never understood this Administration; why did making a smaller state mean that the first group of people they attacked were Her Majesty’s Revenue and Customs—the very group of people who could produce the resources, if effectively used, to improve the economic position of the country and the financial position of the Government? But, of course, cuts were made to HMRC and now we are left with the appalling piece of information, which we heard about the other day, that the French have been 10 times more successful than the British in dealing with Google’s taxation obligations. Can noble Lords think of a greater condemnation of the inefficiency of a Government than their failure to raise the resources to which they are entitled because they have not produced the effective machinery to do so?

We should also appreciate that at present there are a whole range of difficulties with the economy. We had a brief discussion at Question Time today about the balance of payments. Many noble Lords in this House will recall a time when the balance of payments—and even quite marginal movements in them—used to dictate election outcomes. Now this Government can carry an absolutely appalling deficit in this respect and have an appalling record in comparison with other advanced countries, yet they appear to brush it off as of no concern. But of course it is of concern, because it reflects just what my noble friend Lord Giddens emphasised earlier and what my noble and learned friend Lord Morris introduced with regard to a specific area; namely, that if we do not safeguard industries such as steel, and invest in and support manufacturing, we will lose the wherewithal to run an efficient and effective economy. The Government have been pretty slack in their response to these issues; we live in hope with regard to the Tata Steel dimension, although even there the Government looked slow off the mark in responding to that well-heralded crisis. Nevertheless, let us hope that lessons have been learned and that they intend to ensure that that crucial dimension of our productive effectiveness is protected.

The Government have also been unfair in their dealings with taxation and benefits, as my noble friend Lord McKenzie indicated. Those in the lowest deciles of income have been hit far more harshly than the top 10% in the country. It is ridiculous that tax breaks are given to the extremely well-off while the disabled have their benefits challenged and indeed cut. Is the House aware that 85% of the welfare cuts have fallen on women? So much for any semblance of equality under this Administration.

Of course, there is also the intergenerational dimension. Our young people face higher university fees and, if they go to college, they find courses being closed because further education colleges have been denied resources under the savage cuts in that area. If they have an apprenticeship, it bears hardly any comparison to the concept of a real apprenticeship, which saw an individual learn a skill under close supervision and with support over a period of time. Now, in many cases an apprenticeship is not much more than a makeshift, limited investment in the training and skills of our people, yet the outstanding issue that faces our economy is our lack of skills. The Government say that they intend—I repeat “intend”; there is not much sense of achievement yet—to build houses, but the construction industry says, “No go. We haven’t got the skilled people to meet the kinds of demands that you’ve been making of us”. That is some condemnation of the Government.

Against that background of continued anxiety, the Government are a little prone to quoting the fact that the international economic situation is difficult to handle. China is no longer growing at the rate that it was; nor is Brazil. The European Community is not the strong market for our goods that it was in the past. How wonderful that that party now looks to the international situation to excuse its economic failures, yet blames the deepest British economic recession since the war on overspending by a single Government—the Labour Government—in Britain. Those false excuses will not do. When the Government fail, they produce a whole range of holes down which our fellow citizens fall.

The Economy

Lord Davies of Oldham Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I, too, begin by paying tribute to Maurice, Lord Peston. We first met 50 years ago, when I was a humble academic seeking to launch a degree in an institution that eventually became Middlesex Polytechnic and, later, Middlesex University. Lord Peston—or just Maurice Peston as he was then—was one of our external examiners. The other crucial examiner was John Rex, a formidable intellect in the field of social science. Lord Peston was of course also an extremely able social scientist and economist. The difference between the two was that Lord Peston was always looking, if improvement was needed, at how that could be encouraged and, if things were going well, how that could be reinforced. John Rex was his diametric opposite. Perhaps we benefited from the fact that there was such a contrast between the two, but I certainly benefited from Lord Peston. Neither of us would have wagered that we would be meeting seven or eight years later when I was a PPS to the Deputy Prime Minister at the time and he was in the Department of Prices with Roy Hattersley, later Lord Hattersley. After that time, Lord Peston carried on with his academic career and then arrived here two decades ago. I came much later but I was not at all surprised by the huge reputation that he enjoyed in this House. He combined the two features that are so much appreciated all around the House: having real expertise and being well worth listening to on all occasions. He also had a sense of humour and a keenness to enjoy the company of others, which I think shone through everything he did and made him so greatly appreciated in this House.

The Government are asking us to look at their steps towards strengthening the economy. The first thing we had better do is to disregard their track record. It will be recognised that in the first years of this Administration—in coalition of course, but with the Conservative Party being quite obviously most critical to it—and even after the economic disaster that befell this country and others in 2007 and 2008, the coalition Government had come to power with a fiscal deficit of only 8% and, crucially, a growth rate of 3%. The Government soon put paid to the latter. The Chancellor wasted no time at all in demolishing hopes of that growth rate being sustained. As my noble friend Lord Hain clearly identified, the Chancellor also massively missed his deficit target in 2015, when we were meant to see the whole of the deficit cleared. It was of course back to where it had been five years before.

Now the plans are quite clear. It was evident in the last Budget that the Chancellor intends to pursue austerity up to the next general election in order to have a surplus in the year of the election. They will be the first Government who pursue austerity as late as that, but that is nevertheless their intention. The OBR gives him a 50:50 chance of making it. Are we meant to lay a wager on a 50:50 bet that the Government are going to get things right in these crucial respects, when they have got them so wrong before? Yet the Chancellor persists in believing that a balanced Budget is the foundation of economic growth.

Of course, what has been missing from this debate is the historical perspective. The historical perspective for when a Government set out to do exactly what this Government are doing is the 1930s. Does anyone think that the constant pursuit of budget equilibrium proved the solution to Britain’s problems at that time? No, the solution to Britain’s problems and low growth in that period was the growth of the armaments industry—state investment on a very substantial scale—as armaments began to develop as we recognised the threat presented by Nazi Germany. Surely the Government must recognise that the state has a role to play in investment if we are to emerge from the position we are currently in.

In his opening statement, the Minister was generous enough to recognise that despite the fact that he has some insights into improvements in certain aspects of productivity, the perceiving public—including investors and people taking decisions about opportunities in the economy—regard our low productivity as acute. No one doubts, least of all the OBR, that productivity is the key to success but the Chancellor has seen output per worker fall to a level that puts us last but one in the list of G7 countries. Before the 2007-08 crash, productivity in this country was increasing by 2%. Since the Chancellor has been in office, it is 0.2%. That is the magnitude of the problem and the failure in the key issue in the development of the economy.

The Chancellor recognises that the economy needs to be supported by more investment. Why are we getting low investment? We know what the outcome of low investment is: employers employing workers at a very low rate, so that even the Government have to step in and increase the basic wage rate because cheap labour takes the place of the capital investment that is absent. If we are going to seriously increase the living standards of our people, we have to have a strategy for investment. If the private sector will not do it, or has not been doing it sufficiently, far from the state withdrawing, it is important that the state steps in. That is why we do not want infrastructure projects on paper; we want infrastructure projects on which work has begun. We do not want years of dither over whether or not we should expand airport capacity; we want decisions about the very difficult issue of additional runway capacity in the south-east.

Far from the Chancellor encouraging state enterprise, far from any Minister suggesting that they have a case for state enterprise in their department, we get the kind of situation we had with the east coast main line. When the private sector collapsed, a government agency stepped in and produced a high level of service, which was much appreciated by passengers. There was considerable public support for the franchise being renewed for those who were running it. Of course, the Government forbade any state intervention. They are prepared to countenance state aid for the German or French state railways, but not for the successful British department. That shows the extent to which ideology—the pursuit of the small state in which the Government play a very limited part—actually defies rationality when the evidence points in the other direction.

The Government also pay very little attention to the chronic situation of our balance of payments. A fair percentage of noble Lords who are present today are mature enough to recall that the 1970 general election turned on the import of two American Boeing aircraft because the test was whether the Government had succeeded in producing a balance of payments surplus. We are in an absolutely chronic state of destitution as far as our trade balance is concerned. It looks as if very little is being done to change that.

Not only do the Government not invest in infrastructure, it seems that they do not give support where it is needed. The noble Lord, Lord Mair, made it clear that support for the engineering industry would be the backbone of significant development in our manufacturing industry. We need manufacturing; we cannot rely totally on services. We need a manufacturing industry that is capable of selling abroad. That means that we have to think about the education of engineers and the status of the profession in this country.

More than that—the noble Baroness, Lady Kramer, hinted at this—we need to look at the skills that are beyond and different from the university-level skills. We all take enormous pride in our universities. My noble friend Lord Bhattacharyya should certainly take pride in the relationship between his university and industrial development in Coventry and Warwick. We know that Cambridge has produced superb relationships between the university and the development of enterprise. There is not enough of it going on but at least the universities are largely protected from the Government’s onslaught on publicly supported expenditure—not so for further education and some aspects of schools.

As far as the schools and sixth-form colleges are concerned, not only is there a brutal onslaught on their resources but the Government have prescribed a national curriculum which militates against certain aspects of vocational education. Is it surprising, therefore, that our young people constantly subscribe to the notion that the only achievement they can expect to be measured against is passing academic examinations and making their way to university? I would be the last person to seek to deter anyone from doing that but we need opportunities for others. We certainly need opportunities for education in the skills that the universities do not provide and which the nation sorely lacks.

We have proposals from all the candidates in the London mayoral election; wider than that, we have the parties competing on the concept that we need to tackle our chronic housing crisis by more building. That is not just a problem for the south-east and London, although that is where the problem is most acute. Large numbers of our people are inadequately housed. If you told the people whom I used to represent in Oldham that the housing crisis is only in the south-east, they would point out the limitations that so many of them have with their housing at present.

When the construction industry responded to the signals that we need more housing, what was the first thing it did? It complained that it cannot get the skilled people it needs to do the work. Yet this Government are decimating further education colleges, with many being forced to combine, and it looks as though others will have to close. What kind of skills development are we guaranteeing for so many of our young people if their opportunities for vocational education and skills development—as if those were some kinds of dirty words —are condemned by a lack of resources due to the cuts that the Government are constantly pursuing?

It is quite clear—unless the Minister is able to give much more convincing answers to the key questions raised in this debate—that we are not going to get an improvement in our economy. I would say, replying for the Opposition, that Europe is not one of those issues. I have agreed with every word that noble Lords have said about the dangers to our economy of withdrawing from Europe. The Minister and I are bound together as brothers in common endeavour on that issue. However, I also agree with the noble Lord, Lord Bilimoria, that those of us who support Europe have been complaining and campaigning about the democratic deficit for years. He is right to point out that aspects of the European Parliament and its structures are totally inadequate. We should do more about that than we have in the past. As he said, however, there are no grounds for withdrawal from Europe on that basis. We are glad that we will have his vote, if not his wholehearted support, in fending off that particular threat to the economy.

The Office for Budget Responsibility has said that the Budget does not offer a guaranteed improvement in productivity. It does not say that this Government offer an improvement in our trade imbalance. However, it was not presented with a question which my noble friend Lord McFall asked, as did my noble friends Lord Haskel and Lord Hanworth in a different context. My noble friend Lord McFall asked: when will the Government really get to grips with the banking culture and make sure that the nation gets the returns it deserves after bailing out the banks? My other two noble friends asked: when will the Government address the nature of the Companies Act and the inadequacy of the structure in which our corporate business currently operates? The OBR also said that it was scaling down its estimate of the prospects for growth. It was pessimistic on that, too. That is enough to chill the bones of the average Minister. It is not a strong economy.

Budget Statement

Lord Davies of Oldham Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, my first duty is to congratulate the noble Lord, Lord Price, on his maiden speech. Had the Opposition had their way, it would have been made in the proper place, in the Chamber, but I hope that he will at least be encouraged by the reception that he has had today to engage in our next economic debate, which will be in the Chamber and which—I understand from the assurances of the Government—will not be too far off. I also could not miss this opportunity to thank him, on behalf of my wife, for opening a small store fairly close to our home. It is close enough for me to be trusted to go on my bike and get the light shopping; I would never be trusted with the more serious shopping that is done on other occasions—so I am grateful to him for that.

Turning to the Budget, what has been laid bare is the Chancellor’s failures over these years: even before the fiasco of the personal independence payment started to unravel, and even before Iain Duncan Smith wrote the first line of his resignation letter, this Budget revealed itself to be a shining example of what happens to an economy when it is deprived of investment. My noble friend Lord Eatwell opened the debate from these Benches by identifying with great accuracy and very fully just why we had suffered such low investment—of course, the cuts are the other feature of this economy which we deplore and which I will come on to in a moment—and just why these have been wasted years and we are doomed. They have been unsuccessful years; we have to remember, after all, that the Chancellor was going to clear his deficit this last year. It will take him twice as long as he said. He is going to go for a surplus almost as fictitious, I have no doubt, as the rate at which he was able to clear the deficit over the previous five years.

There is no doubt that there is only one crucial figure that has come out of the Budget: the Institute for Fiscal Studies emphasised very clearly and several key contributions in today’s debate have subscribed to the point—the noble Lord, Lord Skidelsky, devoted nearly the whole of his speech to it—that we have depressingly low productivity, which lies at the heart of our economic failure. If we are going to progress, it will not be by hitting the targets of a Chancellor who is continually having to row back from very short-term decisions; it will be by how we set about successfully improving productivity in this country. We know the Minister is well equipped to address this issue. We all recognise how difficult the issue is, but it is not helped when the whole direction of policy identified by the Chancellor seems to put such low store by this crucial issue.

The Institute for Fiscal Studies has said that if the OBR predictions on productivity and this low growth come to fruition, we should all be worried. It will lead to lower wages and living standards, not just lower tax revenue to the Treasury. This is lower wages and lower standards of living following on from six years in which the country has suffered from this position. It is also a reflection of the fact that growth is much lower than it ought to be. As my noble friend Lord Darling reminded us, it is lower than the position he achieved two years after the great recession.

As for the contributions which have emphasised how the Labour Government led us directly into these disasters, I cannot remember that it was a socialist Government in the United States under George Bush which produced the first stages of this catastrophe. I cannot recall the fact that the first bank to go down was British—it was American. Indeed, it was also the case that the economies of the whole of Europe fell into the same real decline at the time. So let us not have too much on those lines.

Of course, the Chancellor has just begun to recognise that there are external forces. He actually commented on the fact that there has been a slow-down in the world economy. He is not too confident about the rate of American expansion and he is very pessimistic about the Chinese position. That is just a reflection of a fact that we all know: our economy operates within a wider framework of the world economy, and that is why it is so important that the Budget should be accurate in its predictions and on its strategy. But, of course, this Budget has already unravelled in considerable detail.

The Office for Budget Responsibility has described the UK’s downgraded productivity as the most significant part of its report, and yet the Chancellor seems to be unable to pay attention to that fact. What does it mean in practice? How are people around the country experiencing low productivity? It means that they are going to earn less, they will see their living standards failing to improve, and they will be less likely to be in a job and to pursue a career which utilises their talents. Of course, the strain that is put upon families by these failures is quite enormous, as well as the strain on the economy as a whole.

Let us consider the factors which are crucial to driving productivity—the problem is plain to see. I will take one obvious example. The Government continually boast about their apprenticeship programme and the numbers involved. In many cases the programme is paying little regard to the concept of apprenticeships, which were always used in the British economy in the past. Someone is employed and trained by a company so that they can develop the capacities and skills to do the job for that company. Many of our current apprenticeships are just another word for internships—an introduction into a company and the possibility that one might sustain a role there. As for apprenticeships in more general terms, it is the case that an awful lot of youngsters are going into apprenticeships which are clearly below their educational level. People with degrees are taking up apprenticeships that provide work that is only to A-level standard. Others who have completed their sixth-form education are going into apprenticeships that we used to regard as very low-skilled opportunities indeed.

The economy needs to work better for young people, for households, and of course for our regions. For young people, of course, the Budget merely continues a most depressing scenario. The Chancellor said last week and reiterated yesterday that the Budget was designed to put the next generation first. That is a somewhat late conversion given that the Government have spent the last six years undermining, overlooking and at times even demonising young people. Look at their programme not only in terms of apprenticeships but also in terms of educational opportunities. Further education colleges, which are meant to be crucial to the development of skills in our young people, are closing down. Many of them are facing bankruptcy. Yet the Government dare to suggest that they are offering to young people greater opportunities. This is an appalling track record.

Young people have been hardest hit by the Government’s dismal record on home ownership. Many know that they will not have the earning power to come anywhere near the deposit level required to make their first step on to the housing ladder. As has been well demonstrated, the Government’s new lifetime ISA will have limited appeal for many people for whom saving at the rate envisaged is not something they can aspire to. What is the Minister’s response to the OBR analysis which states that the new ISA is likely to push up the price of housing and, in so far as it works at all, increase demand against provision which is already part of a most depressing bubble? It is a reflection of the fact that asset bubbles are one of the characteristics of this economy and it is why we remain so very vulnerable. I would be interested to hear from the Minister whether the Treasury has done any analysis about the number of people who think the new ISA will assist them. I put to him that, once one takes into account the amount that many young people have to spend on essential living costs, on rent and on paying off debt, there is not much for them to put aside for saving.

This is also a Budget which is detrimental to households. The Resolution Foundation has found that, by 2020, the poorest 30% of households are set to lose around £565 a year, while the richest 30% of households are set to gain around £280 a year. How can the Chancellor justify this distribution of resource? Has he not come to terms with the gross disparity in incomes and growing inequality that are the feature of the western world? Of course, it shows in our companies; we have all seen the statistics. We know the enormous difference between what is earned by the person on the shop floor and what is earned by those in the boardroom —and particularly the chief executive of a company. And yet the Chancellor has found ways to ensure that those who have resources should be blessed by him and that those who are poorly off get little out of this Budget.

In the last Parliament, cuts to tax credits and benefits meant that low-income households with children were the biggest losers—and the Chancellor had to learn his lesson about that in terms of fairness. This time, we have had it with regard to the disabled. How on earth can the country have confidence in a Chancellor with a record like this?

The Institute for Fiscal Studies has stated that the Government’s tax and benefits changes have resulted in significant losses for those of working age, especially those with children in the bottom half of the income distribution. The Budget does little to break the country’s reliance on household debt as a source of growth, and we know how insecure that base is in terms of the economy as a whole. Let us consider rising levels of household debt alongside the increase in the number of people in insecure employment—and zero-hours is insecure employment all right; it means that the employer tells you the number of hours that you are going to work during a set period, with no guarantee attached beyond it. How can people make intelligent decisions about their very limited resources against a background of such crucial uncertainty?

Finally, on the regional economy and infrastructure, my noble friends have already identified in this debate how many infrastructure projects there are—my noble friend Lord Darling stated that we are still thinking about starting up on projects which he signed off in their origins a decade ago.

Many worthy projects have been identified but so little has been achieved. After all, the biggest single achievement is Crossrail, which was started more than a decade ago by a Labour Government. When it comes to London Heathrow, we cannot make up our mind year after year. We cannot get a decision from the Government. I know the difficulties arising from the politics surrounding Heathrow, but we all know that the south-east must have some increase in airport capacity. However, all we get is dither. Meanwhile, in the north of England—the so-called northern powerhouse —the Government reel off a whole string of wonderfully attractive—even essential—infrastructure projects, but there is no date attached to any of them. Indeed, High Speed 2 will take a decade to get as far as Birmingham. That does not have much to do with a northern powerhouse.

It is also clear that when it comes to the actual distribution of real resources, the northern powerhouse has not made much of an impact on the Government. What we see in local government allocations of resources is that the wealthier counties of the south-east get the lion’s share while the authorities in the north, with their colossal problems in terms of the communities they serve, receive much less. Therefore, it will not do to say that this Chancellor has a grip on the nation’s finances and he knows where he is going. He has missed every target he set in 2010, and some of them by a country mile. The only target we can guarantee that this Chancellor—if he stays in office—is likely to achieve is to reduce government expenditure as a percentage of GNP to below 40%, because if there is one target which an ideologically committed right-wing Government have, it is to reduce the role of the state, essential though it is to some of these big infrastructure projects. That is how they mark out a good society. However, as the right reverend Prelate the Bishop of Portsmouth argued, we should have a concept of morality in what we do. It cannot be right that this Budget increases inequality in our society. It rewards the wealthy and condemns the less well-off to an uncertain position and limited resources. That is why we are critical of it.

Economy: Productivity

Lord Davies of Oldham Excerpts

Wednesday 16th March 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, as a novice and relative newcomer, I sometimes quite like long questions as it gives me less time to answer them. However, as a general intention, it would be welcomed.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is a specialist on productivity and therefore obviously agrees with the American economist who said that productivity, in the long run, is the only thing that matters. Of course, it certainly was the basis of the success of the British economy during the Industrial Revolution. How is it, therefore, that the UK is still sixth out of the G7 countries and this Government are making no progress, apart from vague announcements about infrastructure which rarely come to fruition? We are making no progress on improvements in productivity per worker at all. Until we do so, we will not be able to clear our debts and have a position in the world that others respect.

[Lord O'Neill of Gatley]

My Lords, there are many complex aspects to the ongoing productivity puzzle around the world, and I do not have time to speak to many of the issues that the noble Lord implied in his question. I remind the House that next week we will have a debate on the Budget, when I will have the chance to go into some of the issues in more detail. However, in a recent discussion with independent directors at the Treasury, I was particularly pleased to hear them commend the Government’s efforts to boost productivity through their policies and to address some of the long-term, powerful weaknesses of the UK.