Economy

Debate between Lord Lea of Crondall and Lord Haskel

Thursday 10th September 2015 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I am delighted to move this Motion this morning. In fact, I rather feel like somebody waiting for the No. 59 bus and then two come along. Having two debates on productivity and the economy this week is most exceptional. Some of us were unable to get on the first bus, as it was slipped in during the summer, so I welcome noble Lords to this rather full second bus.

Now that the new Government may at last be thinking beyond austerity, I feel that it is very important to explore this, and I am grateful to all noble Lords and the Front Benchers for their participation. Perhaps debating this issue twice this week is an indication of its importance.

Let me start with the Government’s recent paper on productivity. Much was repeated in Tuesday’s debate. It certainly pressed most of the right buttons but, like many previous efforts, it is destined to achieve little. Why? It is because there is no strategy. It mentions everything; it prioritises nothing. It remembers everything; it learns nothing. If we want to move from an age of austerity into an age of productivity, it is management and leadership that should be prioritised, and then things will get done. That is because the first task is to encourage a culture of productivity, both in business and in government. Without this, much of the work that the Government do on infrastructure, housing, science and education will all be wasted. This is urgent because in the next 12 months, productivity has to make up for the gap between the recently announced withdrawal of in-work benefits and the rise in the minimum wage. Otherwise, it will lead to job losses. Quite rightly, one does not encourage productivity by driving down wages and making people poorer; that is what happens in an age of austerity.

This is especially true in local government, which has suffered twice the cuts that UK public spending has suffered as a whole. Over the past five years, the cuts in local government have not been so obvious because they are hidden: prisons or roads not being built, or reduced welfare for people whom we do not see outside of their homes. The public sector, which the Government are in charge of, is hardly mentioned in their paper. In an age of productivity, this kind of management is not good enough. If there has to be budget cuts, there must also be management and leadership to help cope with them.

After the age of austerity, the strength of our economy will rely on our ability to adapt to all the new changes coming from many directions. Our ability to manage things will be crucial. The old tools will not solve these new problems. I say this because technology is transforming everything. To start with, business markets and government services can be transformed in months as new apps and ideas reach millions of people in days. This means that it is the younger, digitally knowledgeable employees who will detect the coming change or indeed suggest one. This means that companies, particularly large companies, are going to have to change the way they manage their staff. Employees at all levels have to be free to come up with new ideas and exploit digital platforms. This kind of creativity is stifled by the more traditional forms of management.

Many jobs are now not jobs in the way they used to be defined. Many people are employed part-time or over the internet; it is called transactional employment. Many now work in an online market for casual labour, which is rapidly expanding. This is for not only on-demand or sharing services such as accommodation or taxis but, for example, computer programming. In Europe alone, there are some 20,000 freelancers registered with Upwork, which does this kind of business. The scale of this new world of work is only just emerging. Its impact on the age of productivity will be twofold. First, the Department for Work and Pensions will have to be creative and find a new form of employment arrangement that suits these changing circumstances, so that it does not just become old-style casual labour, with people losing out on training, pensions, holidays and sick pay. Secondly, as people become their own managers, so the economy becomes more productive, and the tax system will have to acknowledge and understand this.

Many noble Lords are concerned about skills shortages. By introducing a training levy, do we presume that the direction of travel is that business and industry will deal with the skills themselves? Is this why larger government contractors must now have apprenticeships?

The Government are obviously unsure about this policy because they have announced that they are going to create seven new national colleges for particular industries, such as nuclear and high-speed rail, with employers expected to contribute towards the capital costs. Meanwhile, resources are being put into university technology colleges, yet FE colleges, which offer the more expensive training and vocational qualifications, have had their funding cut. This kind of muddle confuses parents, and confuses students looking for a technical education and training for a career. To find out whether this is yet another example of the Government remembering everything but learning nothing, I have put down a Written Question asking who will pay the running costs of these seven new colleges. The crucial point is that the right technical education has to be available to those adapting to the technical change.

The age of productivity calls for a more progressive style of management, which ironically often means less management as people work with more autonomy. The Chancellor has asked Sir Charlie Mayfield to look into all this to see how corporate governance can look to the long term instead of the short term, and I am sure that his proposals will be very helpful. However, we cannot wait for yet one more report without getting the impression that Ministers are having reviews until they get the recommendations that they want, especially as there are signs that the change is already happening. The CEO of Unilever has stopped quarterly reporting. At its recent London conference, the Coalition for Inclusive Capitalism called for a more broadly based prosperity and is enlisting our major asset management groups in the City towards this end. Incidentally, Mrs Clinton is pursuing this in her nomination campaign in America.

Some companies have reviewed their governance in terms of stewardship—the kind of stewardship proposed by Tomorrow’s Company. The Bank of England is prodding banking in this direction. Some may say that these ideas have been around for a long time, but in an age of productivity, their time has come. This has to be the direction of travel. Ignoring this will once again be a sign that the Government are remembering everything but learning nothing.

The Government’s leadership on sustainability and the green environment is another important aspect of leadership in an age of productivity. The Government’s words indicate a green direction of travel, but recent actions indicate the opposite. For example, the Energy Bill will produce abrupt changes. Also, cancelling the requirement to build zero-carbon homes from 2016 adds to the feeling that we are not going to achieve the legally required targets for carbon emissions by 2020. This must be managed better. In an age of productivity, you have to carry people with you and have a purpose with which people can identify; otherwise, the very objective you are trying to achieve becomes discredited.

The Minister’s regional policy of more independence is absolutely right for an age of productivity. But in an age of productivity regionalisation must be seen not as devolving the cuts to local government, as happened in the age of austerity, but as revitalising areas of Britain away from London.

The age of productivity requires this kind of management and leadership because of the growing impact of computers and technology on work and business. In an age of productivity, products and services have to be lighter, smarter and greener. Services in particular will become yet more data-driven, using algorithms that self-improve.

[Lord Lea of Crondall (Lab)]

Would my noble friend mind if I asked him a question that has puzzled me for a long time on exactly the point that he has just made? How is it that we never see any sign of these vast increases on paper of productivity through technology —10 times, 100 times—in the aggregate productivity statistics?

[Lord Haskel]

The Minister has asked Sir Charles Bean—Charlie Bean—to look into this whole question, so I will leave it to him to answer. It is called delegation.

At present, we have a growing system where public administration, business and trading, shopping and entertainment, travel and leisure, and running our offices, our homes and our health depend more and more on computers dealing with each other. Sometimes, we are the only human in the loop. This is what the age of productivity will eventually look like.

The danger lies in our ability to control this complexity and interdependence. The complexity defeated us in the financial sector and helped cause the crash in 2008. This is why we need management and leadership that will remember everything and learn from it.

There is also a need for government to understand that much of this investment is intangible—difficult to see, so hard to finance. It is confusing to accountants, statisticians and apparently to the Government, too—so they set up a committee to look into it. But it is crucial to the stronger policies needed to support innovation. This is why the age of productivity needs arm’s-length organisations such as Innovate UK and the alternative forms of funding which are arising.

So what are the implications for the age of productivity? Since productivity has become disconnected from pay, pay rates have hardly gone up in the past five years. The proceeds of this have accrued mainly to investors and managers. In an age of productivity, the benefits must balance out and both must prosper equally. If they do not, the age of productivity, pursued to its logical conclusion, will create an unequal society the like of which we have not seen for generations. Are we just going to allow this economic process to continue unopposed? Surely not.

The Government claim that austerity is necessary so as not to impose on future generations. I say that we have to move to an age of productivity so as not to penalise future generations. In this way, we will learn something as well as remember everything. I beg to move.