Income Inequality

Lord Davies of Oldham Excerpts

Thursday 21st January 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, the Government are focused primarily on pursuing the appropriate economic policies to promote sustained economic expansion and higher productivity, including better opportunities for those who have been most disadvantaged, whether it be commitment to the northern powerhouse or the Midlands engine, and the devolution of policies that go with that, particularly skills and education. Those are the policies that are attracting more and more of our policy attention.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister says he has data that show inequality reducing. I would very much welcome any submission he intends to make. I can only assume that he is measuring the past few months and that some of the inequality that has been reduced is because assets have dropped in value for the very rich because of the collapse of prices on the FTSE. Let us be absolutely clear: from 2010 onwards, wages were effectively frozen in this country as there were no pay rises at all for workers. I cannot understand how the Minister can suggest that the Government have been pursuing policies of reducing inequality.

[Lord O'Neill of Gatley]

My Lords, it is very dangerous to goad someone with my background about data, but there are considerable and widespread data on these matters published completely independently of the Government. In fact, the data show that the so-called Gini coefficient, which is one of the widely accepted global measures of inequality, has been showing a slow decline in British inequality since the mid-1980s, as I said earlier, both at the disposable income level and before disposable income.

Economy: Balance of Payments and Industrial Productivity

Lord Davies of Oldham Excerpts

Thursday 10th December 2015 Lords Chamber

[Lord O’Neill of Gatley]

My Lords, there were at least three questions there but I shall try to be brief. I speak frequently to the EEF and its survey unfortunately reflects similar and growing evidence from surveys all over the world of weakness in manufacturing. The UK’s most regular monthly survey of the degree of optimism, or otherwise, in business shows that it remains one of the strongest in the G7 countries.

[Lord Davies of Oldham (Lab)]

My Lords, as the Minister has indicated that he is prepared to comment on statistics, I shall ask two straightforward questions. Is it the case that manufacturing output is now down the levels of 2009—just after the financial crash? The march of the makers is therefore becoming the slow movement of the disappointed. Is it not also the case that, with productivity set to fall over the next two years, the gap between the UK and the G7 countries is now down to 1991 levels? If these figures are correct, what on earth have been the so-called successes of the long-term economic plan?

[Lord O’Neill of Gatley]

My Lords, again there are many questions about the arcane world of economic statistics with which I am very familiar. I suggest that there is no clear correlation between the level of manufacturing and the overall level of productivity. I spent considerable time yesterday discussing this with my many friends in the north of England.

Autumn Statement

Lord Davies of Oldham Excerpts

Thursday 3rd December 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, this has been an excellent debate. We thank the noble Lord, Lord Carrington, for introducing it. I think it was Gary Player who said that the more he practised, the luckier he got. I am not sure that I can attribute those virtues to the Chancellor, but certainly we are very grateful to the noble Lord, Lord Carrington, for both securing this debate and for his introductory speech which kicked off the issues in a very interesting and able way.

The Government have long boasted of their long-term economic plan but have proved themselves quite incapable of sustaining it. The House will recall that the Government now propose to put the accounts into surplus by 2020. My noble friend Lord McFall indicated that the OBR thinks that the Chancellor has a 50% chance of meeting that objective. But since the Chancellor also promised to have eliminated the deficit by this year, it is really rather difficult for many of us to sustain his credibility when it comes to managing this economy. As my noble friend Lord Haskel indicated, there seemed to be elements of creative accounting with regard to the Government’s expectations and predictions for how their long-term economic plan was meant to work out.

Of course, the Autumn Statement was notable rather less for anything to do with planning and rather more for some pretty sharp U-turns—welcome, of course, but little credit to the Chancellor. The pressures that built up from the public and the professionals about the potential cut-backs in policing in these dangerous times, when already 17,000 officers have been lost to the force over recent years, were pressures that the Chancellor eventually succumbed to.

The other U-turn was occasioned by this House, to its everlasting credit. I heard what the noble Lord, Lord Wakeham, said. There is much to debate on this. I know that my side will conduct themselves as constructively as possible in those discussions but let the noble Lord, Lord Wakeham, be under no illusion. The Government start off on the wrong foot. Six hundred years of Conservative majority in this House ought to make them rather wary of seeking to reverse a majority against them at the first serious instance. I hope we will have some constructive discussions on that but they are not going to be easy ones.

The Government still intend to savage the welfare budget, even though they have abandoned their position on tax credits. The projected cuts to universal credit over the next five years indicate that the Government are still victimising the poor. As the noble Lord, Lord Shipley, said, why is it that the poor are meant to pay the price of the problems that the Government face? It used to be the shirkers, those who were on benefits. Now, because the Government have extended the cuts to those who do not have enough to live on but actually work, we do not hear quite so much of that argument. It is quite clear that the problem for so many of the poor is that they are in badly paid jobs which cannot sustain their living standards, and there are far too many people in jobs who would welcome longer hours but cannot secure them. That helps to ensure that their living standards are very low.

It is also the case that productivity is heading downwards. If the Chancellor really is intent on concentrating on the longer term, rather than the immediate, short-term needs of the economy, he ought to address himself much more forcefully and effectively towards productivity, which remains a great weakness of the British economy. We are still substantially behind other countries in the G7. The forecast is that productivity will actually head downwards over the next few years. The Government have got a great deal to do.

If the Government can guarantee that their levy will produce a greater number of highly valuable apprenticeships in industry, that is certainly a step in the right direction. But up until now they have been preoccupied with counting the number of apprenticeships rather than evaluating their worth. In the mean time, in another aspect of the skills economy, the Government are bent upon destroying those forces which could help to improve our skills. Further education, the unprotected part of education, has already taken a very substantial number of cuts in its provision and is due to take more under this Government, who guarantee only cash increases rather than real-terms sustainability. It means, as was indicated in the debate, that we may well see a number of our colleges close at a time when they ought to be providing the skills that are needed.

It is so obvious that to effectively expand the construction industry, we ought to expand it on the basis of British skilled workers. From what one can see at the present time, if the Government really are going to improve the question of housing—the noble Lord, Lord Young, pressed on this and indicated areas in which they could address themselves to fresh possibilities—they have to get themselves out of a position where they preside over the worst housing record for nearly a century. At the moment the industry looks to foreign skills. That is why the OBR has indicated that, of the very substantial number of jobs that will be created in our economy over the next five years, a great deal will go to those who immigrate into this country. What kind of world are the Government living in if they are ensuring that employers still look abroad for skills while the nation is greatly concerned about the opportunities for our own people and the overall level of immigration? I hope that the Minister will address himself to the fact that there appear to be predictions of 1.5 million more jobs being created but immigration going up by 925,000. The Government certainly have to answer this case. If they have this long-term economic plan, it ought not to be difficult for them to address these issues rather than concentrate on the issues which largely preoccupy them.

Of course, we all recognise not just the weakness of provision in social security but the real worries with regard to the health service, particularly the fact that the health service is dogged by hospitals being unable to place in social care those patients who are ready to leave hospital because of the devastating impact on social care of the cuts that the Government are enforcing. That situation is predicted to get worse so I hope the Minister will respond to the issues I have raised, which embellish the questions that the noble Lord, Lord Skidelsky, asked of the Minister—in only a four-minute speech. I used a rather longer speech last time to ask similar questions. I was not entirely satisfied with the answers. Perhaps I will have greater luck today.

I will finish with one obvious point. Austerity is not mandatory. It is not an economic necessity. It is a political choice and this Government persist in this choice and ask others to pay the price. That is why 3 million people who are in work are actually underemployed because of the kinds of jobs they can get. As for rebalancing the economy, manufacturing employment dropped by 10% over this last period. The Government have done absolutely nothing about the catastrophe of the steel industry. You would think that a right-wing, capitalist Government could not ever do anything about industry because their tenets are that they must do for success. Tell that to President Obama—the American car industry was in the most desperate straits and the federal state bailed it out. British industry looks for greater support from this Government than anything that is on the horizon.

Spending Review and Autumn Statement

Lord Davies of Oldham Excerpts

Wednesday 25th November 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am delighted to see the Minister in his place making one of his more constructive speeches in the House. I will give him a chance to answer a few questions, but before I get on to that I shall put the Statement into some kind of context.

The Chancellor was obviously buoyed by, as he saw it, some successes in recent months. However, I shall ask the first obvious question: whatever happened to the long-term plan? For years we heard nothing but Conservative Members of Parliament talking about the long-term economic plan. We all know what the conclusion of that plan was meant to be: the elimination of the deficit during this year. The deficit has not been eliminated this year; in fact we are £69 billion in debt. It is quite clear that the Government have jettisoned the long-term economic plan in favour of a second version, which is that we will have a surplus of £10 billion in 2020. Even the Institute for Fiscal Studies gives the Government only a 50:50 chance of hitting that target, so we wonder what credence we should give the Chancellor following his speech in the Commons today.

There were two significant climbdowns: one was no further cuts to the police force—here, some credit is due to the Opposition, who made it clear to the Government that further cuts were quite unthinkable in the present context—and the other was a credit to this House and a direct reflection of its holding the Government to account and asking them to think again. Having thought again, they jettisoned that original totally unfair and improper policy. We very much welcome both climbdowns in the Chancellor’s Statement.

We still need to consider a range of fundamental economic failures, though, and I shall be addressing those in specific questions to the Minister. Is not the productivity gap between the UK’s performance and the rest of the G7 countries’ at its widest since 1991? That shows this country in a very poor light, and of course the Government must take responsibility for a great deal of that against a background of what is recognised as an absolutely chronic balance of payments position under this Government. That can be remedied only if we invest in the development of skills and begin to export more successfully.

Every hour worked in Germany, France or the United States is worth one-third more in terms of achievement than an hour worked in Britain. This must be because the Government have been so content over the past five years to see wages fall—we all know how dramatic and persistent that fall has been over this period—and have neglected skills development and run, essentially, a low-wage, low-skill economy, which cannot be the future of the United Kingdom.

The Government are always negative about public sector investment. In the railways, for example, even a successful public sector-run franchise, the east coast main line, was jettisoned in favour of a free and open competition—as long as no British public institution could compete. However, state railways from France and Germany were welcome to take over part of our railway system. Of course, the same is happening with our nuclear power stations—we are making ourselves dependent upon investment from the People’s Republic of China. It is interesting to see that the Conservative Party now finds itself in cahoots with a very significant state-run society.

Public sector net investment in 2009-10 was at 3.2% but is now down to 1.5%. It is therefore not surprising that certain aspects of public work and investment are at a very low level. That is shown, for instance, in the quality of our roads. Are the Government comfortable with the fact that our roads are rated below the standards of Spain, Portugal and—wait for it—little Croatia? The only areas in which the Government have shown a commitment to investment are projects they inherited: Crossrail and HS2. It will be noted that although they sustain these projects, the Department for Transport is to take its 30% cut, which will be effected by cuts in “administration”. If one believes that, one can believe most things.

Overall, investment in skills has been woeful. It is clear that the business department is being cut to the bone. The number of jobs lost there is very significant, and it is clear that training and development is to be vested solely in the enterprise of private industry, to which the state has very little to contribute. Yet industry is crying out for the skills of young people. That is particularly true in the construction industry, which of course enjoys the reputation of translating investment into jobs quickly, and can meet a need in circumstances where our housebuilding programme is at its worst peacetime level since 1920. What a record the Government have on housing our people!

Then of course there is the whole question of the National Health Service. We are delighted that the Government have indicated that they know they need to increase investment in the National Health Service. We are also pleased that they recognise that alleviating pressure on hospitals can be achieved through increasing social care places. However, 3,000 beds have been lost in recent years and there is no indication that they will be replaced quickly. Of course, the promise that local authorities can increase council tax provided that they spend the money on care homes is to be welcomed.

As for the police, I can find no reference to what the Government will in fact do about the police, except that that there are 17,000 fewer officers since they came to power. They have indicated that they will not put any further pressure on police by cuts, but there is no indication of what money will be devoted to the police force and where it will come from.

I therefore want the Minister to answer three questions. First, if the Government wish to promote infrastructure, does he accept that public sector net investment has halved as a percentage of the GDP under the Government? Can he accept such a deplorable state of affairs? Secondly, we know that we need to boost productivity. Is the Minister concerned that the gap between productivity per hour worked in this country and in the rest of the G7 is so very wide? Thirdly, the Chancellor said that he has balanced the books, yet the deficit is set to be very substantial this year.

Finally, the Government are ending their onslaught on tax credits, for which we are duly grateful, and this House takes a great deal of credit for that achievement. The House acted constitutionally and properly and caused the Government to think again. However, this spending review and Autumn Statement indicates that only a £3.385 billion saving will be rendered in respect of tax credits. In fact the Government have always maintained that £4.4 billion would be saved. Are the public to find that other billion in this next year?

[Baroness Kramer (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Davies of Oldham, but I confess that he disappointed me today. He did not throw anything, so we have missed out on the drama of the other place. I was also somewhat disappointed in the Budget. It is less generous than it appears on first viewing: we still have a £12 billion cut in welfare. If I understand it correctly, that will now happen as people transfer into universal credit. I am sure that the Minister will advise noble Lords about that—it would be good to understand how it will work. Of course, I am absolutely delighted that the Chancellor reversed his plans to cut tax credits for poor working people. I think, with some interest, that had the Chancellor been a Member of this House a couple of weeks ago, when the relevant statutory instrument was debated, he would have supported neither the Conservative nor the Labour Motion, but the Liberal Democrat fatal Motion.

We are also pleased with the upfronting of money for the NHS in this Budget, especially the investment in mental health. That is welcome, but can the Minister confirm whether that £600 million is new money for mental health and does not contain any former promise within it? We are supportive of stamp duty on buy to let and very supportive of the increased spending on infrastructure. We note that the Chancellor partially explained that that was because borrowing is now cheap. That is what we have been saying for weeks, so we are very glad that he has listened to that argument.

However, if I lived in a deprived community, I would be exceedingly concerned today. Perhaps the Minister can help us. Although the Government have said there will be no cuts in the policing bill, I am somewhat confused. Does that mean that the grant levels for policing will continue to be the same from central government, or is part of the money to be replaced by a precept raised locally, by police and crime commissioners? I did not follow that and therefore do not understand what might be happening. If I am in a deprived community and find that I have an additional bill on my council tax for policing, I am almost certainly going to have an additional bill on my council tax for social care, because, as Members of this House will know, the most vulnerable elderly tend to live in the most deprived communities, with the narrowest council tax base. Therefore, paying for social care through an additional precept on council tax will be very tough for those communities. I would indeed be worried.

I would also be worried in another sense. The Chancellor significantly slashed the revenue side—that is, the operations budget—of the Department for Transport. Immediately in my head went up the warning sign that much of that is spent on bus grant. Again, with local authorities under great financial pressure, are we looking at either losing a lot of our bus services outside the big urban centres, where the systems can wash their face themselves, or are we looking at additional council tax being raised to pick up bus services?

The repatriation of business rates is something that we have always supported in principle, but I did not quite follow that; again, perhaps the Minister can help us. If I understood the Chancellor correctly, the equalisation will disappear. As this House will know, business rates have been centrally collected and then redistributed on the basis of need. As that is eliminated, will we again find that our most deprived communities, with the least capacity to generate new business and new business rates, will be the ones that suffer, while somewhere such as Kensington and Chelsea or Westminster will be in heaven? I hope very much that the Minister can support us, because one knows that, with Budgets, the devil is very much in the detail.

Perhaps the Minister can help us also on further education. What I heard was a real-terms cut in the further education budget, which will be protected only in cash terms. In this House, we have all discussed—indeed, the Minister himself has discussed—the significant problem of the lack of skills that is holding back economic growth. Especially now, as we are constraining migration, it is really important that British people have lifelong learning. Apprenticeships and universities have a huge role to play, but the underpinning in our ever-changing world, where people constantly need to update their skills, means that further education is absolutely critical. Have we just heard a cut in that sector?

Perhaps the Minister can help us with this policy of equalising per pupil spending in schools. It sounds on the surface not to be an issue, but does this mean that schools, for example, in London, in some of our most difficult communities and which have delivered outstanding success, are about to have a cut in their per pupil spend based on this equalisation? We really need to know and understand the detail of that.

I will make just two more comments. Although there were many measures to support new ownership, the private rental sector was ignored. We have 1.6 million people on the waiting list for social housing who will obviously not be helped, and so many in generation rent, who spend half their income on rent, have not been helped either.

My last point is that this Budget relies on a £27 billion find by the OBR in increased tax receipts and low interest rates. I point out that both could change or disappear. Given the constraints of the fiscal charter, what are the consequences for this Budget if that should happen?

Finance Bill

Lord Davies of Oldham Excerpts

Tuesday 10th November 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, this has been a most interesting debate and the Minister will enjoy summing up these varied contributions. I hear what the noble Lord, Lord Howard of Rising, has just said, and what the noble Lord, Lord Flight, said earlier about tax inspectors. I cannot remember them raising the issue on how the bedroom tax would be enforced and whether people would in any shape or form suffer any derogation of liberty when investigations were done on that front. Of course, we accept that the Inland Revenue has to work within the framework of the law and we are glad that that has been emphasised, so the two contributions were of some value.

I will begin by commenting on those parts of the Bill which my party finds acceptable, and on which we congratulate the Government. On the annual allowance on pensions, Clause 23 restricts tax relief on pensions for high-income individuals by introducing a tapered annual allowance with effect from 6 April. It restricts tax relief for pensions contributions for those who earn more than £150,000 a year. So there is a gesture of some recognition of fairness as far as pensions are concerned.

We also recognise the relief for finance costs related to residential property businesses in Clause 24. That will ensure that relief will be at only 20% for those landlords claiming on mortgage interest payments. Some of them in the past have claimed 45%, which approaches a level of being scandalous. We are glad that that loophole has been plugged.

We are also interested in the anti-avoidance provisions and congratulate the Government on making progress in that area. Clauses 40 and 41 ensure that investment fund managers who receive carried interest are taxed within capital gains rules. We would have liked to see those interest earnings treated as income rather than as a capital gain. The manager does not contribute a meaningful amount to buy the investment, so why he should be taxed at the lower rate in those circumstance is not clear. The OECD has produced a report calling for carried interest to be taxed as income, and I hope that we will subscribe to that position in due course.

We welcome certain other areas of the Bill which, as indicated by the noble Baroness, Lady Kramer, are also welcome to the Liberal Democrats. I see merit in the vehicle excise duty changes, which she praised highly, but not to the extent that she does. We all recognise that VED needed reform. Green or more carbon-efficient vehicles are becoming more common, which will undoubtedly have implications for vehicle excise duty as a future source of government revenue. The fact that zero-emission vehicles will continue to be exempt from road tax is, of course, welcome, but we are concerned that a flat rate of VED, as outlined in the Bill, will mean that low-emission vehicles will pay £800 or £1,000 more over a seven-year period while many high-emission vehicles are expected to pay up to £440 less. We have, therefore, some anxieties about the way in which that new system is being introduced. We also have concerns about the potential impact of the new VAT system on car manufacturing in this country. There certainly need to be changes, but we do not believe that what is included in relation to vehicle excise duty is the right change for the environment, the consumer or manufacturing industry. It is a good shot by the Government but they have not hit the target as we would have wished.

Furthermore, as my noble friend Lord Haskel emphasised—he was very critical of the Government and I endorse his criticism—the position of the Government on green issues in this Bill is lamentable. The Bill removes a climate change levy exemption for renewable source electricity generated after August 2015. Can the Minister say whether there was any consultation with the industry about this issue, or any impact assessment produced? Or is it just another example of the Government undermining investment confidence in the renewable energy sector?

We sought to bring amendments to improve Clause 27 on Report in the other place, but were unsuccessful. Last week, more than 100 green energy groups wrote to the Chancellor asking him to think again and warning that the proposal to deny community energy investors access to both enterprise investment schemes and social investment tax relief is seen by many in the sector as a final nail in the coffin for future projects. This comes in a week when the wider world is emphasising the actions that need to be taken, particularly by the advanced world, to reduce the impact on the environment of global warming. The Government are stepping back from their commitments in these areas. The Government are hollowing out the renewable energy market from producer to consumer. Whether you are a large company looking to invest in a growing global market or a local community energy project seeking to inform and educate the local public, this Government are clearly not on your side.

Members on both sides of the House referred to the fact that the Bill provides for an inheritance tax threshold of £1 million for married couples and civil partners by the end of this Parliament. This was commended by the noble Lord, Lord Flight, and others on his side and criticised by my noble friends Lord Haskel and Lord Lennie. How can the Government continually emphasise that it is about encouraging those of the working population who deserve support but then happily say that it is also entirely right that people should inherit more than they can possibly earn in one year, in fact over 10 years, when property is transferred to them?

Surely there has to be some recognition by the Government, apart from pandering to the electorate in the search for votes, of equity in this area. We have sought, in the other place, to amend the inheritance tax scheme contained in Clause 9, but without success. We had a little more success when subsequently we tackled the tax credit cuts that the Chancellor sought to bring forward. Is it not extraordinary that the Government should think that the poorest in society, those on very modest incomes, should be hit at the rate of £1,300 a year while the better-off should gain from enhanced inheritance tax opportunities? The Government, and the Minister, have a lot to do to justify themselves on this issue.

Another issue has cropped up in the context of whether taxation in our society is fair. More than 30 years ago, when I first entered the House of Commons in 1974, we were just beginning to debate with some force whether levying VAT on sanitary products was biased against women and not fair to the consumer. Over that long period, we still have not levied the same taxation on sanitary products as is levied on chocolate-chip biscuits, Jaffa cakes and toffee apples, which are all exempt from the relevant taxation.

The Government could have done a great deal in the Budget but what was the overall position adopted in it? The Minister introduced the Bill with his usual calm assurance and insight and took us through the clauses very effectively. He prefaced his remarks with a statement about the enormous success of the Chancellor’s management of the economy. However, he is best placed to recognise that aspects of the current economic scene are extremely worrying. Our productivity and investment record are still poor and our productivity rate is below that of our G7 competitors to a greater extent than at any point since 1991. Today, we heard the news that FE colleges are to be blitzed by this Government, thus impacting on those aged 16 to 19 and those who engage in part-time work and study who seek to increase their productivity through improving their skills. There is even the suggestion that 40% of them should close. How on earth can the Government justify that? In the last debate we had on productivity, the Minister made an extremely acceptable defence of the progress of his plans for improving productivity but referred to the role of the education system in improving productivity simply in terms of the universities. Now I know why he did that as he, or certainly his Government, intended to blitz the opportunities for those who do not go to university but who need the skills which our society now largely tends to import from abroad. The Government are doing devastating damage to a sector of the economy which is necessary to increase productivity.

We jolly well need to increase productivity because our balance of payments deficit is at its highest level since modern records began. If this Government were analysed on the basis of the big debates on the viability of the economy that took place in the 1970s, when even importing a few aircraft could cause a Government great balance of payments difficulties, the situation this Government are in at present would be deemed absolutely chronic and one that far outweighs the anxieties that obtained at that time.

The Chancellor told us that his 2010 Budget would ensure that borrowing would reach only £37 billion by 2014-15. Last year, it was more than £87 billion. He said that public sector net debt would be 69% in 2014-15. It was in fact 80.2%. He also promised that the deficit would be eliminated. He has failed on all those counts. Therefore, while I accept the points made in the Minister’s opening remarks, I hope that he will also address the other side of the picture, which is all too bleak.

United Kingdom: Productivity

Lord Davies of Oldham Excerpts

Tuesday 8th September 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, this has been a most fascinating debate, although I think that I detected a common theme running through many of the contributions, which I guess will probably distinguish it from the debate to take place on Thursday on a Labour Motion. I shall dwell on the relationship between education, training and skills enhancement and the significance of that for improved productivity in a moment. Of course, noble Lords covered a wide range of issues in addition to that theme. I know the Minister will delight in responding to those contributions, including the questions posed by my noble friend Lord Monks. He spoke about the short-term nature of so much British investment and decisions by boards, which cost us dearly in comparison with those countries where it is clear that investment runs over much longer patterns and they therefore are able to reap the rewards more effectively. I am sure my noble friend is right that part of that is related to the short-term, massive rewards which go to senior people in British companies.

Should the noble Lord, Lord O’Neill, give an answer to the noble Baroness, Lady Noakes, about the virtues of HS2, I hope he can refute the suggestion that the first payback will be only after £50 billion has been spent. As regards her contribution, I think the criterion is not the travelling time from London to Birmingham, but increasing the capacity of rail to help the economies of northern England as well as the Midlands and their connection with London. I hope that the Minister is well versed in his history because he has heard elements from economic history which would be quite challenging —whether it is a question of the Speenhamland system, which thankfully gave way to the workhouse but was not always regarded as the most effective and efficient system of organisation of labour in this country, or whether the digital revolution is critical to our future, as there is no doubt that it is.

I want to dispute what has been put forward so much in this debate. Of course, I recognise the value of higher education in skilling our nation. Higher education would never have been able to expand at the rate it did if it had been able to concentrate only on a small number of grammar schools, at which only a small percentage of children qualified at that time, and their product. Subsequently, we have had aspirations to greatly expand higher education, from which we deserved, and have derived, the benefits that we have had.

Even in this period of crisis, higher education can largely sustain itself. After all, the Government have given it the freedom to enrol as many people as it wishes to enrol. They have guaranteed that the fee income can go up with inflation. As the noble Lord, Lord Bilimoria, noted, universities have access to other resources as well. I am the first to recognise that that may not be quite on the scale of Yale and Harvard, and there will never be a time when we match the endowment resources of American universities, but that has not held our universities back from achieving similar levels of excellence and being regarded so highly in the world.

With regard to skills, the issue is not the failure of universities or even their impending doom, because neither is accurate. The problem is the one that the noble Baroness, Lady Harding, and the noble Lord, Lord Stoneham, referred to, of how we enskill the vast majority of our people who are still not going to go to university. The noble Lord, Lord Rees, also recognised that point. We are so far behind. The Government have to recognise this fact. In productivity, we are 17% below the average in the G7, 27% behind France, 28% behind Germany and 31% behind the US. Those are government figures. We have a lot to do. Since we are so behind it is quite clear that we cannot tolerate the very low level of skills in our nation, the skills that are beyond and different from university-level skills. I do not want to say this, but from what I know, American students tend to be waiters while at university in their time away from college. In Britain, graduates become waiters because they cannot find appropriate jobs.

We should think about graduates, but I do not want to concentrate on whether we have sufficient graduates, because I certainly think we have. Nor is the issue resolvable through this wild chase for 3 million apprenticeships, because I do not think that the apprenticeships are anything other than a misnomer. If people are not getting training, if there is no base for the enhancement of their skills and if they are on these contracts that we all recognise are so very limited, the concept of apprenticeships does not serve a useful purpose. We need to concentrate on the skills that Polish plumbers show we are deficient in. We are pleased to see that so many of those who arrive in this country have skills that we have not got in sufficient number in our working population. That is key to the enhancement of our productivity. It means that all of us, including all of us in this House—even those in the Department for Business, Innovation and Skills—must recognise that education goes beyond universities. It is also where further and adult education keep the capacity to enhance the skills that we lack so much in our nation. It also keeps people in touch with the possibility of improving their skills throughout their lives and of being adaptable in a fast-changing economy.

If the Minister says that he agrees with that—I think that he might, because he paid lip service to it in his opening remarks—I have to say this to him: if the universities can sustain their resources, that is not true of further education, which has taken a dreadful hammering under this Government. Some 16% has been cut over the last four years and another 6% was cut in July. We are chewing up the seed corn of our education system. The Government must get beyond the idea that there are only schools and higher education. They have to tackle the points that the noble Baroness, Lady Harding, indicated—namely, that we cannot afford for people to be illiterate, in either a literal or a digital sense, in this modern world. That is where the Government have to show that they appreciate the problem and are prepared to back it with the necessary resources. Thus far, there is precious little indication of that.

If we are to meet the point that my noble friend Lord Desai indicated of how we increase productivity in the caring professions and areas of public service, I say this: the best chance we have of making people better at their jobs, more skilled in the services that they deploy using scarcer resources to better effect, is to ensure that they get the necessary skills and training often provided outside the education system mentioned so often in this House. Therefore, I want this debate to open up for the Government a big challenge on further and adult education. If the Minister cannot respond to that in full this evening, I hope that he will go back to the department and give it a little education on the need for change in this respect.

Budget Statement

Lord Davies of Oldham Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I thank the Minister for his introduction to the Budget, although I think that he will have a more exacting job to do in summing up this extensive, and indeed intensive, debate. I am grateful to the noble Lords, Lord Palumbo and Lord Taverne, and my noble friend Lord Hanworth, who all sought to put this Budget in the context of government policy over the past five years and the challenges which the Chancellor has been obliged to face.

The Chancellor constantly emphasises the success that he enjoys, but what success? At one stage, of course, the deficit was going to be cleared by 2015, and he fell hopelessly short of that objective. Now, he promises that we will be in surplus by 2020, just before the next general election—the same quality of promise that we had last time. But what has not been specified is how he gets there in real terms. We still do not have a clear definition of the £12 billion of welfare cuts outlined some time ago as a generalisation before the general election—nothing specific, of course. What we do appreciate is that the pace of the introduction of these cuts may be somewhat reduced.

All these cuts were concealed from the electorate before the general election and what is concealed now is the level of spending cuts being contemplated. We all know that departments have been identified as not being protected, and we also have some indication of the cuts they are likely to face. I can give one area of cuts as far as education is concerned. The cuts in further education are reaching staggering proportions. There has already been a 30% cut and a further one is promised. Yet further education, as the right reverend Prelate the Bishop of Birmingham indicated, has a part to play in increasing the skill levels of some of the more deprived sections of the population. If we want to move towards full employment, we have to see that the spread of skills goes well beyond apprentices. I welcome the proposal on apprentices, but I am somewhat doubtful about how the costs will be met. As my noble friend Lord Bhattacharyya indicated, they are a crucial part of the development of skills at a certain level, but we need basic skill levels too. That means a relationship with the colleges, but the colleges are effectively being decimated by government policy.

The Government can only conceivably believe that they will reach a surplus in 2020 if they cut public expenditure to the bone, and that will certainly include public investment. We will see a reduction in public investment in the very areas where we need it to increase productivity. The Minister will be able to wax strong on the issue of productivity because we all know his excellent record and experience before coming to this House, but even he may be stretched to identify how productivity over the next four years is going to do anything but fall, as the OBR has indicated. The imbalance that obtains between London and most of the rest of the country will show no significant signs of changing. We all know that we need to improve our productivity because, as has been said in this debate, we compare woefully with Germany, France and the United States. The average productivity of our workers is some 30% below theirs.

The departmental cuts already presaged are putting this policy of investment in productivity at risk. I heard the noble Lord, Lord Freeman, return to his old patch of transport, but he will know that one of the most recently identified areas for cutbacks is rail electrification in the north—and not only the north: we will have a Question tomorrow on electrification to Swansea in south Wales. Cutbacks are bound to have an impact. This investment is meant to improve productivity; it is already being postponed by the Government.

As my noble friend Lord Soley said, aviation is of course an important driver of growth and improved productivity, but we all recognise that the Government have dithered over the additional runway in the south-east. First, they set up the commission and then they made sure that it did not respond until after the general election. There was no particular rationale for that except that my namesake, Sir Howard Davies, needed some time for adequate deliberation. However, he does not need time for deliberation once he has reported to the Government, but the delays go on while they subject the report to the necessary scrutiny within the department. That scarcely shows a commitment to urgency on the projects which are meant to improve our productivity. The noble Baroness, Lady Kramer, identified another area in which there are cutbacks: investment in renewable energy, where we would hope to see improvements in productivity.

So far, the Government’s productivity document is a patchwork of largely existing schemes. We welcome the commitment to expand areas such as apprenticeships, as the noble Lord, Lord Scriven, said, but we have to recognise that the skills we require are such that some areas are bound to need public investment and support to achieve success. However, all we get is bleakness on that front.

The noble Lord, Lord Blencathra, introduced an optimistic note with regard to the Budget. He said that the possibility of wage improvements through the living wage have brought some joy to him. It would bring joy to all of us if that represented a significant increase for working people over the next four years, but it is clear that the levels being set by the Government are really just modest increases—and not in the national living wage but in the minimum wage. That will certainly ensure that working people will receive such modest increases that they will be savaged by the reduction in the tax credits they would otherwise have received, but those are part of the Government’s necessary austerity measures. Working people—and I mean working people, some 3 million of them—will actually see very little improvement in their living standards at all on this basis. We are all in it together, but it is clear that the poor are meant to suffer more. As my noble friend Lord McFall said early in the debate, this is a truly regressive Budget.

If the noble Lord, Lord Northbrook, wants to know my personal view, yes, I find the withdrawal of benefits to a family if they have more than two children extraordinarily regressive and unacceptable, and I am glad that my friends at the other end of the building are voting against it. I accept that there must be some restriction on the amount of benefit paid, but the Government have gone about it in a most unfair and doctrinaire fashion in the policies they are pursuing. As my noble friend Lord McFall said, this will increase child poverty—if we are able to measure it. The Government are removing the criteria by which some elements of child poverty can be measured. It is not surprising that we on this side of the House are somewhat cynical about the measure.

Finally, we hear about deficit reduction in government expenditure, but we do not hear much about deficit reduction when it comes to our trading deficit. As my noble friend Lord Hanworth indicated, it is essential that we pay attention to the fact that Britain is not paying its way. The Chancellor had the nerve to suggest that he will increase exports to £1 trillion by 2020. The OBR said that he will be lucky if he gets to two-thirds of that target. That is a mark of the unrealistic nature of this Budget.

I apologise to noble Lords if I have not given sufficient attention to certain issues in these limited remarks. The House will recognise that we admire the Chancellor’s courage and chutzpah, but as for the reality of the Budget, we condemn it.

Income Per Capita

Lord Davies of Oldham Excerpts

Tuesday 14th July 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I take it that the Minister accepted the post because he intends to do good rather than harm to our productivity figures, in which we compare so badly to our leading competitors. However, how are the Government doing good when they dither over airport expansion, postpone rail electrification, have slippage on road programmes and generally fail to give the necessary government investment that would help on productivity? Even the construction industry is anticipating a drop in productivity this coming quarter. How on earth are we going to solve our chronic balance of payments problem while our productivity levels remain so low?

[Lord O'Neill of Gatley]

My Lords, I am still learning the practices here, and I am extremely tempted to give a very long answer to that very detailed question. I shall find the appropriate moment do so. Suffice it to say, at the risk of repeating myself, that I think I am right in saying that the very specific attention this document gives to all the factors that are important for productivity has never before been given, including virtually every single topic that the noble Lord mentioned.

Greece

Lord Davies of Oldham Excerpts

Monday 6th July 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I thank the Minister for repeating the Statement made by the Chancellor of the Exchequer in the other place.

Yesterday’s referendum in Greece presents the European Union with the most fundamental test that it has faced for a generation. The Greek people have given their backing to their Government, but clearly this does not overrule the position of other elected eurozone Governments who are now faced with a tremendous problem. It is imperative that the Greek Government and their creditors sit down and plan a pragmatic way forward, and avoid creating any chaos by impulsive or precipitate steps.

What are the Chancellor and the Prime Minister doing to press both sides to find a new timetable? Greece’s position in the euro and the EU affects us all. Will the Prime Minister and the Chancellor actively engage with both sides of this impasse and do what they can to help reach a necessary agreement? Does the Minister agree that there is more scope for proactive diplomacy here? What conversations has the Chancellor had with the Greek and other eurozone Ministers since last week’s Statement? It is crucial that the Chancellor plays a full part. What is he saying to the International Monetary Fund, on which we have direct influence, about emerging options for restructuring Greek debt? Last week the IMF signalled that alternative analysis was needed. Can the Minister clarify what course the British Government are advising the IMF now to take?

I turn to some of the immediate issues for the UK and for British citizens. What can be done to help British firms selling goods or services into Greece, which may be awaiting payment because of the suspension of Greek banks that is due to continue? What changes are being made to the advice and assistance given at this time by UK Trade & Investment? Businesses will expect the department to keep them apprised of developments. Can the Minister provide reassurance that the Government are working closely with tour operators and airlines so that travel arrangements are not adversely affected by disruptions to the currency in Greece? Can he assure us that the embassy in Athens and our consular network stand ready to help with the volume of inquiries from British citizens that are now likely? It is not possible to overestimate the pressures that may exist.

Can the Minister reassure the House that Britain’s financial system is properly insulated from risks emanating from a possible Greek exit from the euro? Last night the President of the European Parliament called on EU member states to prepare in the coming weeks for a possible humanitarian intervention, given that children, the sick and the vulnerable in Greece may feel the strain of any volatility in the basic operations of a normal economy. It is clear that in some parts of Greece the issue of essential medicines is becoming an acute problem. How are the British Government responding to this?

Finally, does the Minister agree that both sides of this stand-off still have much work to do? Eurozone countries need to do their best to offer to Greece the opportunity of a return to negotiations. The Greek Government need to face up to their responsibilities for stronger governance and economic reform. These are serious times for Greece, Europe and the United Kingdom. The UK needs to do all that it can to prevent disorder occurring, but to be fully prepared in case disruption does come to pass.

[Baroness Ludford (LD)]

My Lords, I, too, thank the Minister for repeating the Chancellor’s Statement. I find the Statement curiously semi-detached, and I would have hoped—to repeat a word which the noble Lord, Lord Davies, used—for something a little more proactive. The Statement says that we will do whatever is necessary to protect the UK’s economic security, but then it just talks about remaining vigilant and monitoring the situation. Can the Minister be rather more precise about what action is being taken to protect the UK’s economic security? Is the UK as protected as it can be from whatever might happen after tomorrow, whether that is a Grexit or other financial difficulties? Is it the Government’s view that a Grexit has been priced into the markets? What can we expect in that respect?

What about British people who have money in Greek banks? If I recollect correctly, it was said last week that four of the banks are represented in this country, three of which have branches and one of which has a subsidiary. If there is a haircut of deposits, which there has been speculation about, what will happen to British deposit holders? Over the weekend it was remarked that the Government intend to reduce the cap on deposit guarantees from £85,000 to £75,000 because of the drop in the value of the euro. That seems rather bad timing in view of the potential difficulty with bank deposits.

What will be the advice to British tourists if it is clear after tomorrow that Grexit will happen? We all hope that there is not social upheaval, but we have to anticipate that the difficulties in getting cash, medicines and so on will only get worse. What is the Government’s contingency plan? I find what is mentioned in the Statement a little abstract. I do not see clear plans for those who, for instance, might need pharmaceutical supplies during their visit. Will the Government advise people with medical needs not to go to Greece? I would regret that, but is it possible that it will happen? Can the Minister be more specific about what the Government plan to protect our economy and our citizens?

Queen’s Speech

Lord Davies of Oldham Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, this has been an excellent debate. The opening speech from the maiden speaker, the noble Lord, Lord O’Neill, set a standard, which we all greatly appreciated. We are very pleased that he has begun in such a promising way at the Dispatch Box and assure him that we will give support to constructive action in relation to the problems of the British economy. However, because of the nature of this debate he ought not to be neglectful of the fact that there will be one or two challenges about as well, particularly when we get on to legislation that gives effect to the Government’s programme.

Fortunately my noble friend Lord Mendelsohn responded first to the debate by identifying our attitude to some of the Bills. That absolves me from having to be clear about that, except to say that if the Government decide to put themselves in a ludicrous straitjacket by introducing a law that forbids them from increasing various taxes and charges, absolutely confident that there will be no difficulties along the way, that is up to them. The noble Baroness, Lady Wheatcroft, indicated that there might be difficulties and circumstances that none of us can foresee. The Opposition will not ease them out of that at this stage; we will merely concur largely with the legislation.

That will not be so with trade union legislation, however. My noble friends Lord Monks and Lady Donaghy identified our principal objection to this measure and the vindictive quality of it, against a background where it would scarcely be contended that a major issue in the British economy over the last decade has been strike activity. Workers are only too concerned to ensure that there is some progress with regard to the work that they do in circumstances where all is gloom around them. It is quite improper of the Government to engage in what after all is merely an indulgence in ideological spite in their introduction of this trade union legislation. It will not have an easy time in either this place or the other place.

However, we were grateful to the noble Lord for emphasising productivity. I must mention to him that in our last debate on the economy we covered a substantial amount of ground with regard to the deficit, who was bearing the costs of it, how it was best to remedy it and at what pace. But I think that only my noble friend Lord Haskel talked about productivity at that stage. Therefore, it was entirely proper that he should speak early in today’s debate to emphasise that and in doing so support and back up what the Minister said about how important issues of productivity are.

As my noble friends Lady Drake and Lord Macdonald emphasised, we should not underestimate the challenge represented by our low productivity, nor what needs to be done. The OECD report today says that the country’s poor record on productivity is at the heart of the problem with the British economy. It is a poor record that has obtained since the crisis way back in 2007-08. It is quite clear that stronger investment is needed.

My noble friends also identified areas in which it was necessary for public action to be taken. There is absolutely no point in the Government thinking that increased productivity can occur on the basis of a low-wage economy employing low-skilled people. That just leads us into direct competition with other countries that have more than their fair share of low-paid workers. It presents us with a difficulty, because for large numbers of our people their standard of living is so low that we are using public expenditure to subsidise their wages. This cannot make sense in modern Britain.

We want the Government to recognise that they have to do something about this. I know that this will cause a few shudders on the other side of the House, but some of it will involve judicious public expenditure. We cannot enhance the skills of our nation if we do not spend money on education. When I say “education”, I mean state education rather than private, but I am not talking about schools, because the Government recognise that they dare not take a step back on the question of standards in our schools. Nor am I talking about universities, because there are all sorts of ways in which we should recognise the achievements of our universities. What is critical to defective skill levels is further education: the education that is directed at present towards vocational skills—the very area in which the Government are making the most significant cutbacks. They ought to think again about that.

We also think that higher productivity comes from having a better transport system, from when government offices give answers to employers and their staff rather than keeping them waiting endlessly on the end of a phone, and from when efforts are made to sustain and support business and employment. We think that the Government need to look at those issues with real care. Judicious public expenditure on this would reap dividends.

The other maiden speech that was greatly welcomed was from the noble Lord, Lord King. It was long overdue in our terms, and we hope that he will come back with some frequency. We have these economic debates only two or three times a year. He could perhaps make a date to ensure that he can come to one or two in subsequent years, because we very much valued his contribution. We know of his vast experience. My ears pricked up when the noble Lord mentioned the strength of sterling and the problems that created. I do not know whether anyone else in the Chamber noticed that: up to that stage I had not heard anyone else refer to that issue in relation to the British economy. We all know the virtues of the strong state of sterling—it is quite helpful when one goes abroad on holiday—but it is a little different if one is involved in a competitive market and the pound has had the increase in value that it has had in recent years. We are grateful to the noble Lord. We hope that he will come again and that it does not coincide with the disasters that beset his favourite sports teams, such as those over this last weekend. I have the greatest sympathy for him on that score—at least on English cricket, if not on Aston Villa.

In this debate we have helped to establish that productivity is key to improving our performance. The Government ought to address themselves fully to these issues. I am sure that the Minister will ensure that they do. One theme that we would like to see explored is why we have to wait for the OECD or someone else to produce a report on productivity. Why can we not ask the OBR to report on how the options for the spending review might impact on productivity and living standards, and to set out the sensitivity of their forecasts for the different choices that the Chancellor could make? He would have our support if he suggested that the OBR could take on this work. If we are all united on the significance of this concept for the development of the British economy, let us use every tool at our disposal.

I am all too conscious of the fact that many noble Lords have contributed to this debate. I particularly appreciated the comments of noble Lords who sought to broaden its context. The noble Lords, Lord Skidelsky, Lord Low and Lord Bilimoria, on the Cross Benches all tried to put the present issues confronting the British economy into a general context. I was very grateful for those remarks.

I am Her Majesty’s Opposition’s spokesman not just for Treasury matters but for transport. However, transport has received precious little shrift in this debate, although it is carefully listed in its title. I know that the Minister who is replying will be fully briefed on the transport issues, so I will ask my questions in short order. I was grateful to the noble Baroness, Lady Kramer, for mentioning HS2 right at the beginning of the debate. We unite with others in wishing to see it make progress. The Government have a great deal of work to do and we wish them well on this very important project, but for heaven’s sake let us get away from the idea that it is intended only to accelerate the speed at which people travel from London to Birmingham or, as is suspected in the Midlands, from Birmingham to London. It is about capacity and increasing the transport resources that we have available. That is why it is justified. I hope that the noble Baroness winding up the debate will recognise that I have sought to be constructive on this issue.

However, I am less constructive on any delay in providing runway capacity in the south-east. In that I merely follow the noble Lord, Lord Tebbit, in being critical of the Government, as we both were on Monday. I cannot see how the Government can dodge the question of whether they intend to implement the recommendation of the Davies commission. Are they saying that after all this absurd delay while waiting for this report they will still hold his hand and further deliberate on whether he has got it right or wrong? That is surely unthinkable. Once this report is out, we expect action.

I turn to something which I hope is of concern to most noble Lords, and ought to concern us the most: buses. The bus is the most frequently used form of transport. It is the necessary form of transport for a very large number of our people, particularly the low-paid, whom we want to see improve their position and their productivity.

The Government know what a successful bus service looks like: it runs in London in a carefully regulated system. Meanwhile, there is a free-for-all right across our cities and provinces, and our country is ill served. I hope that the Minister in winding up will say something about buses.