The Government’s Productivity Plan

Lord Johnson of Marylebone Excerpts

Tuesday 28th February 2017 Commons Chamber

[The Minister for Universities, Science, Research and Innovation (Joseph Johnson)]

I thank the hon. Member for Hartlepool (Mr Wright) for opening this debate and the hon. Members who have taken part in this afternoon’s excellent proceedings. I welcome the Committee’s decision to focus on the challenge of boosting productivity in the UK; it is one of the Government’s key economic priorities over this Parliament, as we of course recognise that this is the route to raising living standards for people in the UK. Since the financial crisis, we have focused on stabilising the economy, tackling the deficit and creating jobs. As hon. Members have said, the UK has seen strong growth since then: the economy has grown by more than 14% since 2010—that is the second fastest growth rate among major advanced economies, after the United States; employment has reached a record high, with 2.8 million more people in work now than in the first quarter of 2010; and unemployment is at its lowest level for 11 years.

However, if we raised our productivity by just one percentage point every year, within a decade we would add £240 billion to the size of our economy—that is £9,000 for every household in Britain. That is why the Government have taken action to improve productivity in the UK economy. As hon. Members have noted, we published “Fixing the foundations: Creating a more prosperous nation”, a plan for productivity growth in the UK over a decade. It outlines how we can encourage further investment in science, education, skills and infrastructure, and how we can promote a dynamic economy through reforming planning laws, boosting competition and creating a northern powerhouse.

Today, I will seek to address some of the Committee’s concerns and report back to the House on some of the progress we have made in implementing the plan’s commitments. Before doing so, I would like to tackle the questions the hon. Gentleman put about the status of “BIS 2020” and the impact of the machinery of government changes he mentioned on the delivery of the plan. The principles behind the “BIS 2020” work are still important: creating a simpler, cheaper and better Department by 2020. Recent events reaffirm the importance of our becoming increasingly flexible and able to respond rapidly to the demands of new priorities. Given the machinery of government changes, we will be considering in the coming months how the reform plans of BEIS—of its two predecessor Departments—should be best aligned.

[Mr Iain Wright]

The Minister is giving a similar answer to the one given by the Secretary of State before Christmas, but the new Department has now been in operation for seven months and the Minister still cannot say what the savings will be and what activities will be stopped. Does he really think that is good enough, seven months into the new Department’s life?

[Joseph Johnson]

As I said, the alignment of the two Departments’ work programmes is complex, but the process is well under way. Further reports will be made available to the Select Committee in due course.

In its report, the Select Committee expressed concerns about the clarity of the productivity plan’s objectives and the extent to which it represented a new plan for productivity growth. The plan sets out clear objectives that directly target the high-level drivers of productivity performance. It also contains several innovative new policies, such as the commitments to set up a national roads fund and a network of prestigious institutes of technology.

The report also questioned the extent to which Ministers are engaged in the implementation of the plan’s policies. The ministerial team regularly discusses issues relating to the main policies in the productivity plan at several Cabinet Committees, including the Economy and Industrial Strategy Committee. Alongside the Cabinet Committees, the Government have set up a series of implementation taskforces, which are attended by relevant Ministers and senior officials. For example, the earn or learn taskforce is supporting the Government’s commitment to reach 3 million apprenticeships starts in England by 2020, which is one of the many ways the Government are addressing the skills challenges the country faces.

As recommended by the Select Committee, our response includes an update that details the progress made on and future implementation of each of the plan’s 172 commitments. It shows that more than a third of commitments have now been fully delivered, and that outstanding commitments remain on track. For example, we have published a new national infra- structure delivery plan, which details more than £100 billion of planned public investment in infrastructure to 2021; we finalised the funding policy for the apprenticeship levy ahead of its introduction in April 2017; and, through the Housing and Planning Act 2016, we legislated for key planning reforms, such as automatic permission in principle on brownfield sites.

Further mayoral devolution deals have been signed in Liverpool, Sheffield and the west midlands and we have increased the annual investment allowance to £200,000, which is its highest ever permanent level. We also announced at autumn statement a new national productivity investment fund, which will provide £23 billion of additional investment between 2017-18 and 2021-22. That will be targeted at four critical areas for improving productivity: housing, transport, digital communications, and R and D.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Some £7 billion of the £23 billion investment fund has been put back to 2021-22. If that money is so important to drive productivity and growth, why is it not being invested now?

[Joseph Johnson]

The plan is ambitious and involves the expenditure of an unprecedented sum of £23 billion between 2017 and 2021-22. The profile of that expenditure is optimised so that it has the greatest impact on productivity outcomes.

On 23 January this year we published a Green Paper, “Building our Industrial Strategy”, which sets out our approach to developing the strategy. Its main goal is to improve living standards and economic growth by increasing productivity and driving growth throughout the whole economy. My hon. Friend the Member for Cannock Chase (Amanda Milling) asked what the relationship is between the two plans: they are part of the same family of work that sits beneath the long-term economic plan. The industrial strategy will form a key part of how the Government take forward the productivity agenda set out in the productivity plan.

Crucially, the Green Paper sets out three key challenges that we must face up to, now and in the years ahead. First, we must build on our strengths and extend excellence into the future. The UK has real strengths, but we cannot take them for granted. We need to invest in research and development, develop our infrastructure, and make ourselves ever more attractive to inward investment. That is why we announced an additional £4.7 billion by 2020-21 in R and D funding at the autumn statement. This extra £2 billion a year by the end of this Parliament is an increase of around 20% to total Government R and D spending, and more than any increase in any Parliament since 1979. The hon. Member for Newcastle upon Tyne Central (Chi Onwurah) offered empty promises, but we are delivering hard cash, and I know which I prefer.

The second challenge is to ensure that every place meets its potential by working to close the gap between our best performing companies, industries, places and people, and those that are less productive. We have sectors and businesses that are among the most productive in the world, but we also have too many that lie far behind the leaders. Driving up our productivity across the country means that we must enable those industries and regions that lag behind to achieve their potential. Members asked what it is that creates these divergences in regional productivity. This is a complex phenomenon, as many factors drive differences in growth and productivity, including weaknesses in infrastructure and connectivity, different levels of qualifications and skills, different levels of R and D investment, which tend to be correlated with lower levels of productivity, and many other factors.

It is important to note that there are other structural factors, including the quality of management in our companies, which is why the Government are providing significant resources to support the UK’s business-led Productivity Council, which is to be chaired by Sir Charlie Mayfield. This will provide strong and sustained leadership, help support business-to-business engagement and improve productivity across the business community, which is something that my hon. Friend the Member for Bedford (Richard Fuller) wanted us to do.

Thirdly, we need to make sure that the UK is the best place in the world in which to start and grow a business. The UK has a strong record on business start-ups, but too many fail to scale up into the big employers of the future. Through the industrial strategy, we will aim to identify and address the barriers that many businesses face to scaling up and growing. We have invested an additional £400 million in the British Business Bank to catalyse later-stage capital investments by the private sector, and we will work with it further to understand the obstacles that firms face in accessing capital outside London and the south-east. By responding to all the challenges presented by each of the strategy’s 10 pillars in a rigorous and strategic way, we will be able to achieve our objective, which is to improve living standards and economic growth by increasing productivity across the whole country.

If we want to create a country that really works for everyone, then we need to address this productivity issue. We want to see the same high level of success witnessed in Britain’s best-performing companies, industries, people and places in those areas that are still lagging behind. We plan a bold, new and collaborative approach to industrial strategy in the UK. This is a new approach with the Government stepping up, not stepping back. I am talking about designing an industrial strategy in collaboration with people and organisations across the country, and not imposing it from Whitehall. We recognise our productivity challenges, and we also recognise where we can make improvements and build on our strengths to make the UK a more productive and prosperous economy.