Net Zero (Industry and Regulators Committee)

Lord Hollick Excerpts

Friday 20th January 2023 Lords Chamber

Moved by

[Lord Hollick]

That this House takes note of the Report from the Industry and Regulators Committee The net zero transformation: delivery, regulation and the consumer (1st Report, Session 2021-22, HL Paper 162).

[Lord Hollick (Lab)]

My Lords, I am pleased to introduce this debate. I thank our team, Matthew Manning, Holly Woodhead, Dominic Cooper and Itu Osupeng, for their valuable contribution to the work.

Our work started 18 months ago and our report was published a year ago, just as Russia invaded Ukraine, sparking an energy bills crisis and showing what can happen when a country chooses to weaponise its energy exports. The impact of that invasion on energy security and prices strengthens the need to accelerate the transformation to a net-zero energy system that increases domestic production and reduces our reliance on importing fossil fuels from authoritarian countries. It will also lead to a material reduction in our ongoing energy costs.

The Government have set out a number of ambitious targets, including achieving net zero by 2050 and a decarbonised energy system by 2035, which will require a wholesale transformation of our entire energy system. The Climate Change Committee told us that, to achieve these targets, the level of investment will need to increase from £10 billion a year in 2020 to £50 billion a year from 2030 to 2050. Funding the cost of meeting these targets will rely heavily on the appetite of pension funds, overseas investors, the private sector and individuals to invest, and that depends on the Government putting in place policies to encourage and provide certainty for businesses to make these investments.

We asked the Government to set out a road map to deliver the energy mix they envisage for meeting their targets in a secure way, including setting out the funding structures and business models they aim to rely on. We called for clarity from them on the business model for hydrogen and its role in heating; business models for carbon capture and storage, long-duration storage technologies and small modular reactors; funding to support the energy efficiency of homes and the installation of heat pumps; and a review of the infrastructure challenges to deploying offshore wind. Given the potential for technology to develop in unforeseeable ways, this road map needs to be dynamic and adaptable.

We were told that gas will be needed as an energy source up to 2050. We asked the Government to explain the role they intend for gas in the future energy system, including from our own domestic resources. In their response, they promised a range of initiatives and guidance in 2022, few of which have materialised. We wrote to the Secretary of State in December requesting an update on the progress on 14 of those initiatives, to be provided in time for consideration in today’s debate. Unfortunately, Davos intervened and delayed the response until next week, but the evidence to hand shows that delivery is taking place at a snail’s pace—and this against a background of long lead times to build critical elements of the new energy system. Offshore wind infrastructure can take up to nine years and nuclear power stations can take 15 years or longer.

Then, there is the big question: who pays for the huge upfront capital cost of the transformation in order to provide certainty for businesses and households to budget? Currently, much investment in decarbonising the energy system is funded through charges on bills, including the costs of upgrading the grid and building new nuclear power stations. This funding is regressive, bearing down most heavily on those households that are least able to pay. We urged the Government to consider the full range of funding options, including the UK Infrastructure Bank, the British Business Bank, carbon pricing, co-investment, investment subsidies, investment tax relief and contracts for difference. We called on the Government to reconsider their opposition to the use of government borrowing, given its suitability for financing investments with high upfront costs that are to be followed by attractive returns over the following decades.

We found that the scale of the transformation requires urgent action across the economy and across a range of government departments and public bodies, including regulators. Currently, there is insufficient focus and co-ordination, as well as an absence of decisive leadership in government. We proposed creating an expert task force, following the example of the Vaccine Taskforce, that could take responsibility for strategic planning, departmental co-ordination and the monitoring of delivery by all government departments, agencies and business partners; the USA recently appointed a net-zero tsar to a similar role. We believe that this approach avoids unnecessary bureaucracy and provides the decisive leadership to deliver in a rapidly changing environment. The task force will need to address politically sensitive matters, including public spending commitments, so it must be at the heart of government and report directly to the Prime Minister.

Ofgem, the energy regulator, has an important role to play through its regulation of energy networks and suppliers and, of course, in setting prices for customers. Witnesses told us that Ofgem was overly cautious and slow to approve investments to make the energy system ready for the transformation. We therefore recommend that Ofgem’s duties be amended to include explicit reference to the Government’s net-zero target.

Ofgem must satisfy three main objectives of energy policy: keeping bills affordable, maintaining the security of supply and decarbonisation. Finding a balance between these three sometimes contradictory objectives comes down to questions of priorities and trade-offs that only a Government can decide. Since 2014, the Government have repeatedly promised, but so far failed to deliver, a strategy and policy statement to provide strategic guidance to Ofgem. Earlier this week, the Minister told us that it was “upcoming”, but when will it come?

The Government and Ofgem have the responsibility to inform and provide incentives to the public about the changes that they must make to their domestic energy systems. Consumers will want to spread the high upfront costs of heat pumps, for example, on a long-term contract basis, similar to mobile phone contracts. Electric vehicle batteries and other domestic appliances can be set automatically to operate when electricity is at its cheapest. The provision of these new products should form part of the drive to bring about greater competition between energy suppliers to provide added services.

Ofgem’s recent calamitous attempt to introduce competition between suppliers to promote switching has landed a surcharge on all customers to cover the liabilities, now estimated at £3 billion, of the failed new entrants. Fresh from that debacle, Ofgem has recognised the need to add financial and operational oversight to its regulatory duties, but its regulation must become more flexible to allow innovative products and services into the market. These products will help customers to reduce their energy demand, retrofit their homes—which could reduce energy usage by up to 20%—and introduce low-carbon heating, requiring financial support from the Government. Government needs to take the lead and clearly set out what it expects of the public and energy suppliers and what financial support it will provide to help to pay for the necessary changes and investment in our homes.

The Mission Zero review, chaired by former government Minister Chris Skidmore, was published a week ago. It echoes many of our conclusions, including the urgent need for the Government to develop and publish an overarching net-zero delivery and financial strategy and to establish an office for net-zero delivery. Chris Skidmore calls net zero

“the economic opportunity of the 21^st century”

and proposes 129 recommendations to turbocharge the nation’s climate action. More than half of these recommendations need to be acted on this year. He notes that the UK Government are

“not matching world-leading ambition with world-leading delivery”,

and we agree.

The US, China and the EU are investing heavily in net-zero technology and manufacturing. By contrast, our Government have yet to produce their net-zero industrial strategy. A modest number of investments have been made, but much more is required. Without that investment, we will remain importers of net-zero technology and miss out on the opportunity to create a domestic industrial sector, as the bulk of the significant demand created in the economy to source the new energy system will be spent abroad, only to widen our trade deficit still further. As the Committee on Climate Change noted in its last progress report to government, “important policy gaps remain” and

“Tangible progress is lagging the policy ambition”,


with “little concrete progress” on “cross-cutting enablers” of the transition.

The most important conclusion of these three reports —ours, Chris Skidmore’s and the Climate Change Committee’s—is that action is needed today. There are only 27 years left to undertake a fundamental change in the way that our economy works and to secure our energy supply at significantly lower prices, to the great benefit of all citizens and to provide a welcome boost to economic growth and social investment. The lack of a clear and consistent strategy and policy and the sluggish pace of delivery will lead to delay and missed opportunities. I beg to move.

--- Later in debate ---

[Lord Hollick (Lab)]

I thank all speakers today for their contributions. There is a theme of “Get on with it. Don’t go down the pub”. I think the Government have indicated—the Minister did in his remarks—that after a regrettable delay, we will receive a letter responding to the queries we made. I hope that will be an opportunity to discuss and debate the responses further.

The Minister also indicated that the strategy and planning document and the fairness and affordability work are under way and that we can expect them shortly. He mentioned that there was a consultation process that included the regions to be involved. One of the things that comes through very strongly from the debate and the work we have done is that this is quite the biggest challenge the country has faced. It is on an enormous scale and is going to last 27 years. It is unlikely, I hope, that the same Government will be in office throughout those 27 years, so it is very important that we build a cross-party coalition for this. That is essential if we are to attract investment from overseas. Our reputation as a reliable, safe and predictable country to invest in has, over the past few years, taken a bit of a knock, so it is important that when the Government publish their plans, they reach out across Parliament and across the nations and regions of the UK to get buy-in and to make sure that everybody knows that we are all heading in the same direction. Of course, the details will change and technologies will change and develop, but I urge the Government to hurry up and to make sure that they have consulted and got broad support from the nations of the UK and the other parties, but also that they have reached out to consumers and have them on board.

Motion agreed.

Energy Bill [HL]

Lord Hollick Excerpts

Committee stage
Monday 16th January 2023 Grand Committee

[Lord Ravensdale (CB)]

My Lords, I shall speak to Amendments 241, 242B and 242H in my name. In so doing, I declare my interests, first as an engineer and project director working for Atkins within the nuclear industry and as a director of Peers for the Planet.

Amendments 241 and 242H both relate to the renewable transport fuel obligation, the RTFO. I shall concentrate my remarks on Amendment 242H, as I believe it is the right amendment of the two to take forward. It aims to widen the scope of the RTFO from renewables to cover all low-carbon sources. I know the Minister will agree that we should, as far as possible, be technology-independent in how we set up subsidy schemes; as long as the source from which the fuel is derived is low-carbon, we should not care about its wider classification. The amendment seeks only to reflect existing government policy.

I note the July 2022 consultation on the related topic of recycled carbon fuels, which was titled Supporting Recycled Carbon Fuels through the Renewable Transport Fuel Obligation. Recycled carbon fuels are not classified as renewable fuels, as they are made from fossil-derived waste: for example, non-recyclable plastic waste or industrial waste gases that would otherwise be landfilled or incinerated. However, RCFs can provide significant carbon savings compared to traditional fossil fuels such as petrol, diesel and kerosene. The consultation says:

“To introduce support for RCFs into the RTFO we will need to amend the Energy Act 2004 and lay secondary legislation to amend the RTFO Order 2007. The measure is expected to be part of the forthcoming Transport Bill.”


The Government have already agreed with the principle of taking this important measure forward and there is a great opportunity for them to get it done now, within the Energy Bill, so that primary legislation is in place to begin allowing the significant carbon savings that can be generated from recycled carbon fuels, the constituents of which would otherwise end up in landfill. Otherwise, if we wait for the transport Bill, we are looking at a significant delay, as I understand that it will not be progressed in this Session—perhaps the Minister will correct me. I am sure he will see the sense in this argument, given the benefits of progressing with these measures now. It would not commit the Government to anything. Obviously, secondary legislation would be needed to enact any of this, but it would remove the blocker that currently exists in primary legislation and allow the Government to progress with these measures when they so choose.

The amendment would also have wider benefits beyond recycled carbon fuels. It would also allow, for example, hydrogen produced from nuclear power to be eligible for RTFO support. There are plans being developed to use nuclear-derived hydrogen to power construction vehicles for Sizewell C build. It could be a key use case for hydrogen in transport and in construction vehicles which need to operate for long periods—24 hours a day—on sites with limited electrical or charging infrastructure.

As with the RCF, much further work would be required to implement this in secondary legislation if the Government chose to, not least on additionality rules. However, it would remove the blocker that exists in primary legislation and open an opportunity for the nuclear industry to begin generating hydrogen. It would also demonstrate the Government’s commitment to technological independence.

The question may arise of how exactly we define low carbon. In the RTFO context, the Government have published detailed sustainability criteria which any eligible fuel must meet. These include requirements to deliver at least a 60% greenhouse gas emissions saving versus fossil fuels. Compliance with the sustainability and carbon reduction criteria would be a straightforward way to define this term in secondary legislation.

To summarise, this is a straightforward amendment that reflects existing government policy. It does not commit the Government to do anything but does remove a blocker that currently exists in the Energy Act 2004 in extending RTFO support to other low carbon sources. It would also allow the Government to progress with their plans for recycled carbon fuels, given the delays with the Transport Bill. Therefore, I hope the Minister will agree that it would be sensible to proceed with Amendment 242H and allow the carbon reductions that will be possible through the use of recycled carbon fuels.

Amendment 242B was originally put forward by the noble Baroness, Lady Neville-Rolfe, and was transferred to me following her move to the Front Bench, so I thank her for originally tabling it. It is also related to an amendment I put forward regarding the Nuclear Energy (Financing) Act. It is a probing amendment designed to highlight a key issue with the financing of nuclear projects going forward, both through the RAB and other investment mechanisms. There are two aspects relating to financing of new nuclear that need to be highlighted here.

First, investors are constrained by ESG criteria that apply to their funds. My concern is that nuclear will not be considered sustainable, or taxonomy aligned, under the green taxonomy, which the Minister assured us last week is progressing at the Treasury. This concern comes from previous positions on nuclear in similar EU schemes, and from the Treasury’s not including nuclear in its green financing framework.

As with the previous group of amendments, this all comes back to technology independence. Nuclear is a low carbon technology, along with many others, and the Government should not be picking winners in the race to net zero but enabling a level playing field. If nuclear is not considered as taxonomy-aligned under the UK green taxonomy, there is a real risk that nuclear projects will not be able to attract capital in sufficient quantity to realise the Government’s ambitions for the sector. ESG alignment is now a key factor in capital raises for pension funds and institutional investors. I would be most grateful if the Minister could again provide some assurance that nuclear will be considered as taxonomy-aligned under the forthcoming green taxonomy.

Secondly, I referred earlier to the UK Government Green Financing Framework, which describes how the UK Government plan to finance expenditures through the issuance of green gilts and the retail green savings bond. Currently, this excludes investment in nuclear, but again I urge the Government to reconsider. The Government need to take the lead here in defining what counts as sustainable within their frameworks. This is so important in leading the markets in the right direction and in allowing these schemes to finance future government investment in nuclear.

[Lord Hollick (Lab)]

I rise to speak to Amendment 242A, which my noble friend has just introduced. In the course of our inquiry into the net zero transformation, the Industry and Regulators Committee, which I chair, took extensive evidence about Ofgem’s remit and whether it should be amended to include a specific requirement to have regard to meeting the UK’s net zero emissions target.

Ofgem’s primary statutory duty is to protect the interests of existing and future consumers in relation to gas and electricity. This objective is to protect those interests taken as a whole, including their interest in the reduction of greenhouse gases and in the security of the supply of gas and electricity. This duty guides Ofgem when it is making decisions and trade-offs in the regulatory framework between the three objectives of decarbonisation, affordability and security of supply.

Many of our witnesses told us that the net zero target should be included explicitly within Ofgem’s strategic duties, not least because Ofgem’s responsibility for setting the price and affordability of energy must take into account the substantial level of costs of the transition to net zero which will have to be borne by consumers.

If there is no explicit reference to net zero, there is a danger that the decisions will be very short-term in nature, focusing on short-term costs for consumers and not the long-term costs of failing to achieve net zero and invest in the infrastructure necessary to achieve that. The Climate Change Committee agreed. It argued:

“Giving Ofgem a net zero responsibility”


will help it to

“think … strategically about the changes that lie ahead so that we can minimise the cost to the consumer in the long run.”

Jonathan Brearley, the CEO of Ofgem,

“said that Ofgem is open-minded about whether it should be given a primary duty to achieve net zero, arguing that ‘I and the board have been very clear that we see net zero as fundamental to our existing duty’ … noting that there may be a benefit to clarifying that.”

The impact of net-zero costs on consumer bills is, ultimately, a decision for the Government, not for regulators. The Government promised a strategy and policy statement setting out priorities for delivering a net-zero energy system to ensure that the supplies are available at the lowest possible cost—that was promised in 2022. They also promised to publish a fairness and affordability proposal by the end of 2022. Neither of those documents has yet been cited, and it is indeed unclear whether the consultations are actually taking place. There will be an opportunity in our debate on Friday on the report from the Industry and Regulators Committee for the Minister to enlighten us on the progress of those two very important pieces of work on strategy and affordability.

Without those two statements from the Government, Ofgem will struggle to reflect net-zero costs in its energy pricing; but there is no doubt that those costs will have to be reflected, and Ofgem should have a clear and explicit duty to do that. That is why the Government should accept the amendment, to make it plain to all parties that Ofgem has a strategic duty to take into account the very considerable short and long-term costs of the transformation of our energy system and challenge the Government should their guidance impose unaffordable or unfair costs on consumers. Perhaps the Government might find such an independent intervention from the statutory regulator a little inconvenient. It would be ironic if the regulator most responsible for regulating the journey to net zero is one of the only regulators which does have a specific responsibility in its remit.

[Lord Lennie (Lab)]

My Lords, I thank all noble Lords who have spoken, particularly the noble Lord, Lord Teverson, my noble friend Lord Hollick and the noble Baroness, Lady Hayman. I also support what the noble Baroness, Lady McIntosh, said and what the noble Lord, Lord Ravensdale, asked.

I will comment on how reforming the remit of Ofgem using the Energy Bill would achieve what we are trying to achieve in the amendments in my name and those of the noble Baroness, Lady Hayman, and the noble Lord, Lord Teverson. Ofgem’s remit has not changed substantially since 2000. It does not prioritise electricity decarbonisation in line with the Government’s recent legislation or stated ambitions; it has only a consideration of greenhouse gas reduction. As a result, Ofgem has been unable to reform substantially its working practices and regulatory frameworks in response to the Climate Change Act 2008 and the UK’s subsequent net zero ambition.

The Government have an opportunity to address that with the Energy Bill, and, while they have recognised the need to reform substantially the working practices of Ofgem in the past, they have done so through the creation of a strategy and policy statement—an SPS—for Ofgem. That urgent statement will be welcome; we note that, largely due to its complexity, it has not been published since 2020, when it was first proposed. It was consulted about in 2021, but we are still waiting for the statement to see the light of day. It seems to us that, to help with the Government’s net zero ambition, giving Ofgem the mandate to advance policies in support of net zero would be extremely welcome.

Artificial Intelligence (Select Committee Report)

Lord Hollick Excerpts

Monday 19th November 2018 Lords Chamber

[Lord Hollick (Lab)]

My Lords, I thank the chairman, the clerk, his team and our specialist adviser for helping the committee to navigate the vast landscape of AI. I will focus on three connected parts of that landscape: AI’s possible impact on industrial performance and productivity; its impact on the world of work; and its possible impact on the distribution of income. I emphasise “possible impact” because the widespread adoption of AI is at an early stage and, while there is no shortage of analysis and prediction, there is as yet no substantive body of evidence to guide us.

Over the past 30 years, the rapid deployment of computing and automation has revolutionised the way we live, learn and work. AI takes this a lot further. It can remember more, think faster and perform complex tasks which we took for granted to be the preserve of humans. AI, with these abilities, will bring about far-reaching changes right across the board.

The Government recognised AI’s revolutionary potential when they placed AI at the heart of their Industrial Strategy last December. That strategy and the subsequent publication of the sector deal in April made the bold claim that AI would potentially add 10% to our GDP by 2030, if adoption is widespread, and boost productivity by up to 30%. The development and deployment of AI are seen as a building-block in the creation of a significant new business sector with good export potential.

The UK’s investment in AI is a fraction of the amount invested by the US and China, both of which are planning significant increases in their investment over the next decade. But thanks to our strong research base and access to the best and brightest academics and entrepreneurs in the EU and globally, our AI sector ranks among the finest in the world. To maintain this position, the Government must commit to replace EU funding for research and development, where the UK currently receives a disproportionately high level of subsidy thanks to the strength of our AI sector.

Investment to provide fibre to all premises nationwide is critical. In February, only 3% of premises were connected by fibre compared with more than 50% in most of our competitor countries. When he was Secretary of State at DCMS, the much-travelled Matt Hancock waved away our concerns and told us that the market would take care of it. We found his assurances unconvincing. What are the Government doing to prioritise funding for this essential infrastructure?

The ability to continue to attract the best and brightest and budding entrepreneurs is essential. The Government have made a good start by increasing the number of PhD places in, and doubling the cap on, tier 1 exceptional talent visas but, as they acknowledge, there is much more to do. The challenge of attracting and retaining talent after Brexit is highlighted in a recent survey of scientists by the Francis Crick Institute: 78% from the EU said they were now less likely to stay in the UK and a surprising 31% of the UK-born scientists said they were now more likely to move overseas. What further measures are the Government contemplating to improve access for overseas talent?

Maintaining and increasing the investment flowing into the development of AI could be boosted if the Government chose to use a fraction of the £45 billion annual procurement funding to partner with the AI sector to develop AI solutions for the public and private sectors alike. This approach would help to address the long-standing British problem of excelling at research but leaving the development of that research for others to exploit.

The UK’s thriving AI sector has proved a magnet for international investors. This is to be encouraged, but must be matched by a determination to ensure that inward investors do not game the tax system and that they abide by the developing rules on privacy and content, particularly the recognition that the protection of the integrity and ownership of data is paramount.

As the noble Lord, Lord Clement-Jones, mentioned, the acquisition by Google of DeepMind, one of the jewels in the crown of AI in the UK, brought welcome funding to develop DeepMind’s leadership position, but it meant that ultimate control now resides in the US. The reality of that control became clear last week, when Google absorbed DeepMind’s healthcare business, which has benefited from a controversial deal with the Royal Free Hospital to access 1.6 million patient records—a deal that the Information Commissioner ruled failed to comply with the Data Protection Act. When we visited DeepMind, we were told that an undertaking had been given by Google that the healthcare business would remain part of DeepMind and based in London. What are the Government’s concerns about the transfer of DeepMind’s healthcare business to Google in apparent contradiction to these undertakings?

Public administrative data, particularly healthcare data, is a valuable public resource and should be made available to commercial partners under strict conditions and on arm’s-length, market terms. Public bodies lack the skills to negotiate such arrangements, so the Information Commissioner’s Office should be resourced to oversee the terms and conditions of agreements to make sure that public information is made available to commercial partners on market terms. What are the Government’s plans to support public institutions to make sure that they secure the right terms and conditions?

In a similar vein, the Competition and Markets Authority should take a close interest in the sale of AI enterprises to foreign buyers. Their sale can undermine the Government’s strategy to foster a UK-based and controlled AI sector of scale and further deepen the unprecedented concentration of wealth and power in a small number of US-based digital oligopolists.

UK consumers are among the most enthusiastic adopters of new technology, but not so UK business. The low level of tech adoption by UK companies, large and small, is part of the story of our productivity gap. The Government, with the help of industry bodies and the AI council, should devise a series of measures, including fiscal incentives, to accelerate the take-up of technology across the board.

Productivity improvements usually spell job losses. The deployment of AI will lead to job losses, and the public are rightly anxious about their jobs, wages, security and prospects. Predictions of job losses range from 10% to nearly 40% of the current workforce. Many will be in the service sector. Predictions of off-setting new jobs to be created range from a net loss of nil to 30%. It is generally agreed that job losses will precede the arrival of new jobs, but it is not just the availability of a new job that concerns the public but the type of job and the pay and conditions that go with it. The experience of the impact of automation on the job market so far is that replacement jobs for unskilled or semi-skilled workers are less well paid, less secure and lack the benefits enjoyed in their previous employment. AI now places at risk many of the jobs which replaced those lost in manufacturing.

Take call centres and large distribution centres, which are often sited in former manufacturing areas. Call centres employ a little under 1 million people. An industry expert told us that by 2020, 40% of those jobs, and by 2025, 70%, would be replaced by AI answering systems. Warehouses are increasingly fully automated and will employ only a few maintenance, caretaking and software people.

In a recent speech at the Royal Society, Professor Stiglitz examined the impact of the adoption of automation on income and wealth distribution and highlighted the increasing polarisation in the workforce between the skilled and the unskilled. Citing US figures, Stiglitz noted that the real wages of the unskilled and semi-skilled worker have declined over the last 35 years, with male workers experiencing a 42-year decline. He warned that, in the absence of a new policy framework, this trend will continue, but across a wider section of the workforce, as AI is deployed to carry out both routine and complex tasks.

The figures in the UK are not as bleak, but many low earners, especially the unskilled, have seen their real income decline or increase only minimally over the past 30 years. There is a widening gap between the high and low earners. Average real wages fell between 2007 and 2015, and have stagnated over the past three years. The same pattern can be seen in many developed countries. There is a correlation between low income and social mobility, which fosters a sense of disconnect, of being left behind—a sentiment that provides fertile ground for populist politicians.

We have heard much in the past week about bringing the country together. Perhaps bringing the Government together might be a good start. With the right policies, AI could usher in a period of prosperity, but without the right policies it could further polarise society and undermine social cohesion. A priority must be for the Government to make a major commitment to invest, as the chairman of our committee said, in lifetime training and skills to equip people to deal with the far-reaching and continuing changes that will flow from the introduction of AI.

The Government should consider the introduction of a lifelong learning account to replace what the Economic Affairs Committee’s recent report on student loans called the current “unfair and inefficient” funding of post-school education where further education, whose funding has been severely reduced, is the,

“poor relation to higher education”.

We need a new deal to help workers to train and retrain throughout their working lives. This will help to narrow the politically toxic gap between those with skills and those without. I look forward to hearing the Minister’s response to these issues; they have been identified in the report, and he has recognised that more needs to be done. It would be good to hear today what that “more” is.

Industrial Strategy

Lord Hollick Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Hollick (Lab)]

My Lords, successive Governments have energetically committed themselves to boost growth by improving industrial performance. After all, growth secures and improves the public finances and promotes a feeling of well-being and confidence—two sentiments which have been notably in short supply since the 2008 financial crisis.

In the 1960s, Harold Macmillan created the National Economic Development Council to inaugurate indicative sectoral planning. Backed by Treasury funds to support a big infrastructure investment programme, the country then set off on a dash for growth to achieve 4% per annum. Harold Wilson went further and published a national plan to capitalise on the white heat of the scientific revolution. The target 4% growth rate was achieved, but not for long as the Government became distracted by the troublesome behaviour of the pound. Edward Heath concluded that the best way to help Britain recover from being the sick man of Europe was to join the European Economic Community, with its large addressable market and bracing competition from other nations with more successful manufacturing sectors.

And so to today, where many of these themes find an echo. The economy is in austerity mode, weighed down by the cost of the financial crisis. We are now on the brink of leaving the EU or contriving to find a semi-detached relationship. Wage levels, unless you are in the FTSE boardroom, are trending flat and confidence, as measured by the depressed state of corporate investment, is at a low ebb. George Osborne decided to double down on austerity and thus failed to take advantage of historic low interest rates to invest in fixed and human capital. He coined some snappy phrases, such as the march of the makers and the northern powerhouse, but failed to take steps to make them take root.

In contrast, Mrs May has brought planning back to centre stage and added industrial strategy to the title of her business department. The detailed industrial strategy that has been published is to be commended, but can it be delivered? The plan’s analysis of the UK’s shortcomings is wearily familiar, but no less important for that. Labour productivity has declined faster in the UK than in any other OECD country; total investment in science and innovation is 1.7% compared with the OECD average of 2.4%; our workforce is inadequately skilled; investment in our infrastructure is far too low; and we have a long tail of low productivity firms. Crucially, we fail to translate our brilliant research into successful businesses and, if we do—we do sometimes—they are often snapped up by overseas investors with funds which will help fill the trade deficit, which continues to deteriorate despite the strong growth in services. The industrial strategy unflinchingly acknowledges these deficiencies and offers a wide range of initiatives backed by a measure of funding too often deferred.

However, against the backdrop of the deteriorating macroeconomic outlook and the complete unknown of life outside the EU, I doubt that these sensible, but modest, initiatives and the level and timing of the funding will suffice. To work, a strategic plan must set clear, prioritised targets and ensure that all are adequately funded and resourced. Above all, the focus must be on outcome not on a long list of activities. This strategic plan has few measurable targets, and the funding is thinly spread across a frankly confusing blizzard of microinterventions. Crucially, there is insufficient thinking and planning to boost the demand side, where the UK’s economy is chronically deficient. Will the proposed governance structure, headed by an independent industrial strategy council comprising business people, investors, academics and economists, have the resources to evaluate the effectiveness of all the initiatives? Will its work be supported by an expanded OBR? I ask this because the Government have poor form on independent accountability. The National Infrastructure Commission was initially to be a statutory body to monitor and make independent reports to Parliament on all major projects, but after pushback from the departments whose projects would be exposed to the cold light of independent scrutiny, the Treasury quietly dropped the potentially inconvenient statutory status.

The commitment to devolve the implementation of the planned initiatives to the regions is welcome, but it must be backed up by hard cash transfers from Whitehall and must allow the regions to work out for themselves and select which of the policy initiatives they wish to implement. This will help to rebalance government funding away from London and the south-east and will introduce a necessary element of competition.

Housebuilding would be a major beneficiary of a move to devolved responsibility, but only if local authorities are allowed to borrow to build and, in particular, to build much-needed social housing. The Economic Affairs Committee of this House, which included two former Chancellors and three Treasury mandarins, last year recommended a target of 300,000 new homes a year. That target is included in the strategy. The committee also crucially called upon the Government to lift the limits on local authority borrowing for housebuilding. The UK should adopt the accounting convention of most OECD countries and exclude public loans to build houses, which are, after all, income generating, from the public sector borrowing calculation. This change would allow local authorities to fund themselves and to partner housing associations and private sector builders to deliver the homes which are so desperately needed.

The Budget promise to increase funding for housebuilding is helpful but is estimated to deliver only an additional 30,000 homes over the next five years. Bolder action is required, but finance is not the only constraint. The housebuilding industry estimates that an additional 500,000 workers are needed to build 300,000 homes each year. Where are they to be found? Surely it is time that the Government came clean and explained how immigration restrictions will be managed to ensure that the workforce will be available to build the homes the country needs and that other sectors of the economy are adequately staffed. A strategic plan without the provision of the skills to implement it is a sham.

The strategy is right to plan to capitalise on the UK’s strong position in artificial intelligence. To do this the tech sector needs to be able to continue to attract the best talent from around the world. The Government should use public sector procurement to boost the development of AI by ensuring that it is deployed throughout the public sector. Government funding for research and development should be provided on a partnership basis with industry so that the risks and rewards are shared proportionately and so that the Government receives a fair share of the profits on successful AI products. A vibrant AI sector can also promote digital adoption by companies large and small to the great benefit of national productivity—but there is a but. Our digital infrastructure is second rate. We rank 54th in the world for fibre connections to premises. The commitment to spend £1 billion to beef up mobile and broadband is wholly inadequate to build a universal fibre and 5G network. The Government’s response that the market will take care of it is dangerously complacent. They must produce a comprehensive and costed plan in partnership with industry to provide this crucial infrastructure if they are to achieve the objective set out in their plans. If they can find £70 billion for HS2 to make 19th century infrastructure go faster, surely they can find a lesser sum to fund the essential digital infrastructure of the 21st century which, unlike HS2, will pay its way.

An AI turbo-charged economy is expected to bring significant disruption to the workplace. Some roles will be enhanced and new roles will be created, but many will disappear. There is likely to be a prolonged period of turbulence and uncertainty which will call for far-reaching changes in education and training and, in particular, in retraining throughout a lifetime. This means an increase in funding and a rebalancing to boost skills and vocational training.

The overall macroeconomic outlook for the UK continues to be very challenging. Leaving the EU brings uncertainty, disruption and confusion, which are all enemies of growth. The industrial strategy sets out clearly the deep-seated and persistent problems the country faces. The combination of these three challenges demands a bold and radical response which can build on many of the proposals included in the strategy. Now is not the time for unfocused half-measures or for funding deferrals. To meet the challenge the strategy should be radically reworked to prioritise key elements, set clear and verifiable targets and ensure that the proper levels of funding are in place. Borrowing to invest in a long-term growth plan is now a national priority.