Budget Statement

Lord Kestenbaum Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Kestenbaum]

My Lords, today’s debate in your Lordships’ House increasingly reflects a wider and urgent economic debate in chambers around the world. At one end of the argument, there is a fundamental belief, as we have just heard, that debt reduction for its own sake will eventually clear the path for strong growth. The alternative view is that debt reduction for its own purpose is not only an all too narrow goal but is destined to fail unless economic growth is pursued with equal and relentless vigour.

Although the Minister said that our focus on the deficit does not mean that we cannot attend to growth as well, that focus does not feel equally spread. With yesterday’s slashing of growth forecasts, we are beginning to confront the painful reality that the latter argument prevails. The evidence is sadly clear that the multiplier effect of austerity, its economic misery, let alone the human cost, is more severe than even the Office for Budget Responsibility had warned. In short, austerity as a fixed policy in the sand, and in the absence of a well constructed, ambitious, aggressive tapestry of active government, will never produce growth. However much pain is administered, however deep the incision of cuts, ultimately the failure genuinely and aggressively to grow the economy will lead to the failure to balance the books. The evidence was announced yesterday. At a time of unparalleled spending cuts, paradoxically, the UK’s national debt will rise to 85% of GDP.

If the urgent national imperative is growth—we are all united in that—and we know that it does not travel through austerity for its own sake, what might we expect from active government? The first thing is to dispense finally with the tired false choice of either a constant flurry of well intentioned interventions or staying, as we have heard in recent years, firmly out of the way. We must lay to rest the myth which says that you have a pro-growth environment only if government leave the stage. We urgently need intelligent and active economic policy which nurtures—indeed, drives—growth. Look at the most imaginative global economies, our real competitors: the United States, Finland, Korea and Israel. They all have large measures of supportive public policy and effective financing mechanisms—in short, active, aggressive, growth-oriented government.

Secondly, we know exactly what the engine of growth will be. We know now how clearly the path travels from innovation to economic growth. We know the facts. Innovative businesses create more jobs and grow faster. Hence, innovation as a national strategy is the most important driver of long-term productivity and prosperity. Yet, despite this, NESTA’s innovation index showed that innovation and investment in innovation declined by as much as £24 billion last year. This was at a time when we also know from the same index that fast-growing, innovative businesses make a disproportionate contribution to our national fortune. Just 7% of businesses in the UK, classified as high-growth and innovative, have been responsible for half of the new jobs in the past decade. The evidence conclusively shows that innovative, high-growth firms will produce the jobs of the future. They will be the productivity drivers of the economy of the future.

If we know that the road to growth travels through innovation, what might we expect from those with their hands on the policy levers, which the Minister dubbed “managing well the things we have control over”? This financial crisis offers the chance to put in place on a serious scale often talked of plans to channel large parts of the £220 billion government procurement budget to innovative businesses. As my noble friend Lord Bhattacharyya said, the announcement yesterday about the SBRI—the programme which drives government businesses to innovation—is certainly welcome and using the TSB as the catalyst is wise. However, the quantum is a pinprick in comparison to the opportunity and the need. The target yesterday was merely £100 million of redirected existing budgets in an annual spend of £220 billion. Consider what a little more ambition could have done at no extra cost. Just 2% of government procurement toward innovative businesses would be nothing short of transformational.

These are very modest steps in transforming government budgets from blank cheques to intelligent, demanding drivers of innovation, but it is on a tiny scale and at a time when new customers for innovative businesses will determine whether they thrive or go bust. My noble friend Lord Eatwell correctly identified the urgent need to stimulate demand. Can we not bring this part of our national effort to real scale, such that active government purchasing will have great and lasting impact on the innovation economy in society more broadly? We know—we have seen it around the world—that government being a lead customer was the major factor in the growth and development in Silicon Valley. It is no exaggeration that whether it is the GPS navigation system that none of us can live without or internet protocol software, government purchasing of these technologies in the United States was the basis of the most transformational global innovations of recent decades. Getting this to scale could be a central plank of the new growth, at no extra cost.

I urge for there to be no more tiny programmes, timid in scale, often initiated with great fanfare and then quietly closed 18 months later. We hope for an aggressive, ambitious, national programme running right through government, perhaps facilitated by the TSB, which does nothing other than force a procurement revolution.

I have made today a particular and practical remark about one of the engines which could power our desperate need to go beyond austerity and from innovation to real growth. It could be an engine which is fired up without any additional cost to the taxpayer and with no increase in the deficit, simply by dramatically, ambitiously redirecting current spend away from unimaginative vested interests and towards making government the most dynamic and effective customer for buying new products from innovative businesses.

The alternative is dire. A commitment to simply reducing national debt has not shown enough signs of enhancing our nation’s prosperity. Our growth programme is looking inferior to so many of our competitors. There may be no plan B, but it is becoming increasingly clear that something else is needed to deliver growth more comparable to the world’s most dynamic economies and, in turn, sustain the society that we must nurture here in Britain.