Economy: Growth

Lord Layard Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Layard]

My Lords, long-term growth depends on the accumulation of capital. I want to make just one point about each type of capital: human capital, physical capital and social capital. Human capital is of course much the most important as it accounts for over half of the value-added in our economy. As a country we do quite well at the production of human capital in our universities and sixth forms. We have a good and well understood system. But we have absolutely no well understood system for producing skills for the other half of the population. It is an area of scandalous neglect which has persisted for many decades.

Eventually, the previous Government produced what I consider to be the central solution, which is to ensure that everyone who wants it can have access to an apprenticeship. This was established as an entitlement in the Act passed in 2009. Anyone with five passes of any kind at GCSE would be entitled to an apprenticeship place. As a result, every 14 year-old would be just as likely to see a way forward if he wanted to go down the apprenticeship route as he would if he took the sixth form route. This was to happen by 2013 and in my view it was the single most important policy for growth that was introduced in the previous Parliament. But, incredibly, the present Government’s Education Bill, if it is passed, will cancel this reform. Instead, the Government are offering 12,500 extra places a year for unemployed youngsters. One wonders at their thinking. How can it make sense to wait for a person to become unemployed before they can get a proper education? We have got into an extraordinary frame of mind in this country. For that group of people we have stop-gap measures and programmes. We want a proper system for the half of our population whose talents we have failed to develop to enable them to become skilled and have a proper stake in our community. Will the Government please let the reform in the 2009 Act stand? They did not oppose it before, and surely the need is even more obvious now.

I turn to physical capital. What we need are incentives to invest, which means good prospects for growth and financial inducements for the creation of new capital. But instead the Government are spending money on cutting corporation tax, which mainly provides a windfall gain for existing capital. If we had time-limited tax allowances for new capital creation, that would be of benefit in the long term and bring forward the recovery.

Finally, social capital is a much neglected asset of ours, but it is crucial to the mobilisation of our human potential. Social capital is what the big society is all about, so I find it difficult to understand why we are seeing the destruction of so much social capital at this time. Every day we hear of people in the third sector being laid off. They are often people who have been mobilising the assets of dozens of volunteers. We learn from the National Council for Voluntary Organisations that the charitable sector is annually going to be losing at least £3 billion of state funding. If the Government do not want to shoot their big society programme in the foot, these cuts should surely be the first ones to reverse.