Economy: Growth

Lord Howell of Guildford Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Howell of Guildford]

My Lords, I join in warmly welcoming my noble friend Lord Deighton to his Front Bench responsibilities. I listened with great interest to his opening speech. I must confess, however, that I am reluctant to join in this great argument between austerity versus Keynesian inflation, of which we have heard both sides in this debate. That is not least because both sides are in fact based on a wildly exaggerated view of the degree to which our economy in this country can be steered, manipulated, adjusted, rebalanced or anything else magically, by purely domestic economic actions, somehow to create growth and pull it out of a hat. In fact, I go further and say that the naivety of some of our economic gurus who pronounce on these matters never ceases to amaze me. It really is laughable to see the so-called expert analysts twisting themselves in knots, to coin a phrase, over whether GDP grew in the last quarter by 0.1% or shrank by 0.3% or more, when GDP itself is a questionable and highly inaccurate measure of economic activity and progress. I believe that it was invented only in the 1930s and it has in any case now been distorted beyond recognition.

Now the experts tell us that infrastructure spending can somehow be switched on overnight to “kick-start”—that is the phrase—the economy. I do not know what system they believe they are dealing with. They have obviously never worked in the construction industry or they would know that the rather ugly phrase “shovel-ready” is a meaningless term and that the best infrastructure projects take a minimum of two years to prepare—the best projects, that is—and to wind their way through all the permissions and controls that we still have in this country, even after certain reforms. I note what was said earlier by my noble friend Lord Forsyth, who reminded us that the HS2 scheme announced yesterday will take 13 years to get to its first phase. I am not at all sure where I shall be in 13 years’ time, or indeed where even the economy should be. I am not sure that these issues fit into our present concerns at all.

The reality is different. It is that our fate lies very largely overseas and it is our sagging exports, especially to the eurozone, that have hurt us. That is the problem now. That is what the December economic review from the Office for National Statistics emphasises, quite rightly, and the Office for Budget Responsibility also makes that crystal clear. I am sorry that my noble friend does not think they are always right but on this they are pretty clear indeed.

In the past six years, goods exports to the poor old European Union have fallen by 5%, while goods exports to non-EU countries have risen by 65%. Since 2009—that is, just over three years ago—our total exports of goods and services to non-EU countries have risen by 35% and to the EU by 6%. At this moment, 60% of all our overseas earnings come from outside the European Union. That trend will probably accelerate and will certainly continue.

On the domestic front, I am not against more major projects here at home to repair and upgrade our dilapidated infrastructure. On the contrary, we need a bit of the imagination shown by the Victorians and some of what has been called the lunatic optimism of the Brunels—father and son—and other great Victorians. I believe that some of these projects could be financed without spooking the international bond markets.

I see that a certain Professor Pissarides, a Nobel prizewinner, has been telling a Davos audience that good energy and transport projects with a strong payback in return, both in narrow and wider economic terms, can be financed with minimum impact on the public finances if sensible accounting practices are used. Some of us have been touting this idea around for at least the past two years. It is all brilliantly laid out in American Gridlock, a book by one of America’s best and most original economists, H Woody Brock, in which he speaks of the need for a completely new capital stock of higher quality. There is nothing very new about these ideas; it merely seems as though economists over here, on this side of the Atlantic, are at last waking up to them. They ought to be ideas that, frankly, transcend party politics and are not turned into a political football.

Still another domestic key to recovery is going for a policy of lower energy and power prices instead of the higher ones that we have at present. Again, my noble friend Lord Forsyth emphasised that. Energy costs here are stupidly high. We may not be able to match America’s low gas and electricity prices at present, for obvious reasons, but anyone who doubts that the value of cheap and abundant power supplies is key should look at the industries now flowing back into America—especially petrochemicals—and the hundreds of thousands of new jobs being generated. Britain is in fact superbly placed over the next decade for gas supplies, with both our own substantial resources and half the world trying to sell us more of both piped and frozen gas. It is a true buyer’s market and we should be making the most of it, rather than the least.

As I say, the real recovery is in export markets—whatever we do at home—and in our ability to be quick-witted enough, agile enough and far-sighted, innovative and creative enough to adjust to totally new world conditions in a network world. If we are looking for the queues that my noble friend Lord Wolfson, in his remarkable speech, said had to be there for demand, then that is where the queues should be forming for us to perform much better in the export market.

While we must of course remain constructive Europeans in a reformed and redirected European Union—we will be debating that matter in this House on Thursday—and while we remain close but not subservient allies of the United States, which is still a colossal market for us, the central priority must be the repositioning of the UK as a global network power. We must build with the utmost vigour on the networks available, of which the Commonwealth is certainly one, and other strong networks and bilateral links outside the Atlantic area.

We have to recognise that the global energy pattern has undergone two successive and enormous revolutions —the first towards lower carbon and greener energy forms on both the supply and demand sides, and the second towards shale gas and oil, and the associated new extractive technologies—entirely altering the global map of energy resources and the corresponding political significance, influence and market power of many countries, many of them with Commonwealth connections, to which we must have access, as well as being sources of savings and wealth to invest back in this country, as the noble Lord, Lord Birt, referred to just now.

In this new landscape we must deploy with confidence and without apology our exceptional British qualities, historic associations, English-language strengths and worldwide cultural influence to our direct advantage in rising Asia, Africa and Latin America. In doing so, we need to use the full range of soft power techniques, new and conventional, to protect and promote British interests, and to promote the British global reputation and powers of influence and attraction for our goods and services.

The potential is colossal. I wonder how many people know, for example, that the Association of Commonwealth Universities, based in London, connects up to 530 universities across this planet in an amazing network of common interests, services and exchanges. That sort of thing is as important for our prosperity as many a conventional trade mission. It also opens up, though exchange between individuals and scholars, avenues for enterprise for small and medium-sized businesses. I should certainly like to see the chambers of trade play a far bigger role in the international export scene, as my noble friend Lord Heseltine recommends, and I declare an interest as the economic adviser to the British Chambers of Commerce.

There is a hopeful message to be distilled out of this. It is not a disaster at all. The message is particularly and almost uniquely favourable to Britain. The essence of it is that we now live not in a world of power blocks and superpowers but in a world of networks. That is what the microchip and the worldwide communications revolution have brought about, and many economists do not yet seem to understand that. It is not just a question of Asia and the southern world awakening, with their vast cities of the future and their cultures and values—which incidentally are often superior to ours when it comes to family cohesion and education—and generally pulling ahead of us in technology. That is the story of the past 10 years and it is almost over. Those schoolbooks that we had about capital flowing from the West to the developing world are history. The wealth, as well as the research and technological skills, are now flowing the other way. The debt-laden western powers are now turning east and south for desperately needed investment and capital from the massive savings and the huge sovereign wealth funds of Asia. We have so much to learn and gain from India and China; it is not the other way round. They certainly do not want lectures from us.

This time round we also have to get even closer alongside not just the BRICS—Brazil, Russia, India, China and South Africa—but the great new energy powers, such as Australia and Canada, two of Britain’s most stalwart friends. They are in the lead, followed by a whole raft of new players such as Mozambique, Tanzania and Kenya in east Africa, and in west Africa Ghana, Sierra Leone and the Nigerian giant, which will soon be overtaking South Africa if it can manage its internal politics. There are also South Korea, where I have just been, with its once direct alliance with the United Kingdom, Turkey, Mexico, Vietnam and other new players and new markets alongside which we must move very tightly.

For Britain, once we have navigated through the present dangerous seas, it means that our luck will be in—unless we screw it up. We will be sitting plum in the midst of the world’s best network. We will be, even more than we are now, a safe haven for the world’s investors. We will be increasingly well placed energy-wise, as I have described. That is the good story of where we are going as a nation—the purposeful narrative, worth telling, even while the cold wind of recession keeps gusting around us. It means that in the totally transformed world ahead, Britain is promisingly placed to become the networking nation par excellence.

Europe of course remains our region, where we have to step forward and work out how to lead, for once, in the reform of the European Union that half the continent is waiting and longing for, and we shall debate this next Thursday. America obviously remains our close ally and a gigantic market but the evolving Commonwealth network is our family and lucky legacy. We should stake our hopes and future prosperity on the connections and gateways to the great new markets that it offers. That is where the demand will come from. Whatever measures we take here at home, that is the source from which our return to full and sustained economic performance will come.

Air Passenger Duty

Lord Howell of Guildford Excerpts

Monday 28th January 2013 Lords Chamber

[Lord Howell of Guildford]

My Lords, I warmly commend the noble Lord, Lord Palmer, for promoting this debate, because there can be very little doubt at all that the UK air passenger duty at its present rate and in its present form is a damaging tax measure. It is also a tax of fantastic complexity, with pages of detail from HMRC as to which flights are liable, who is a chargeable passenger, how long between connections and so on. Heaven knows how much it truly costs to administer.

The very high levels are the real problem. Six European countries, as the noble Lord, Lord Palmer, has reminded us, levy a form of APD, but the UK level is double that of the next highest, which is Germany, and very probably the highest in the world. We have probably reached the stage where the damage to our national economy well exceeds the gains to the revenue.

The present banding discriminates directly against our Caribbean island friends, to many of whom we owe a special responsibility over and above our general duty as a richer nation to maintain our traditional concern for smaller states and their welfare. It creates a plethora of mad anomalies. First, it drives long-distance passengers from the UK to start from Paris or Amsterdam rather than London. Secondly, when I visited Glasgow last year, to view its dazzling and well on-time preparations for the Commonwealth Games in 2014, I was told that many of the tens of thousands of visitors from all over the world will fly into and out of Belfast and then hop across to Glasgow rather than flying to and from Glasgow direct. The reason is that Northern Ireland is exempt from the APD. Lucky Northern Ireland, but poor old Glasgow, considering that it has made such superb efforts to be the ideal host to the Games, which I hope it will be once visitors get there.

This is Treasury obfuscation and short-termism at its worst. Some claim that the APD is all about curbing aviation carbon emissions. We all know, and the latest BP energy projections confirm, that it will be China and India’s performance with their vast increases in coal burning which will determine whether we achieve the CO₂ targets we want to see. I doubt whether APD will make a smidgeon of difference in combating global warming or climate volatility.

The only interest I have to declare in this matter is that I am chair of the Council of Commonwealth Societies and therefore very much aware of the vital need for this country to keep friends around the world, large and small. I have no hesitation in saying, after serving for two and a half years as Commonwealth Minister, that APD in its current inflated form is working against our friends, against our foreign policy goals and against the national interest. The alleged revenue loss from minor adjustments to make it less unfair will be far exceeded by the gains to the UK economy as a whole. It was meant to be a modest tax; it is now a massive tax. The damage caused by APD has increased, is increasing and ought to be curtailed.

--- Later in debate ---

[Lord Newby]

My Lords, the noble Lord, Lord Morris, anticipates me. I was just coming to the Caribbean but a number of noble Lords have called for the tax to be abolished tout court. There have been strong arguments—

[Lord Howell of Guildford]

We must have accuracy in this debate. I am aware of one calling for abolition; sensibly, none of the rest of us is calling for abolition. For the Minister to pin his arguments on the abolition plea alone really is to distort the debate and not to do justice to this House.

[Lord Newby]

My Lords, I was simply stating that I thought that several noble Lords—at least one—have called for abolition.