UK Economy: Growth, Inflation and Productivity

Lord Monks Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Monks (Lab)]

My Lords, I add my congratulations to my noble friend Lord Eatwell for launching this debate in such a stimulating way. It has produced a lot of interesting contributions so far. While I am passing out congratulations, I also congratulate those British businesses, and their workforces, which are world-class and have excellent productivity. They are often based on respect and on working closely with employees and their trade unions. These companies have one thing in common: they take a long-term view of their operations and do not swim in the short-term waters that infect so many British companies.

We are in this mess mainly because we do not have enough companies which take this long-term view and can sustain their position in that world. We do not have enough that invest in skills, innovation and technology. Those that we do have are concentrated in the south-eastern corner of this country, our only region which matches up to the most productive regions on our near continent.

We have been aware of this problem for a long time, with the earliest echoes way back in the 1870s. There have been many initiatives by successive Governments and others over the years to see whether we can improve matters. Some useful improvements have been made, but no real game-changers have resulted in Britain being promoted into the premier league of economies. We may have been up there for very short periods of time but not in any sustained way.

The problem is that things are not getting better—they are getting worse. As has been said by others in this debate, the gap between our productivity and that of the French and Germans is widening. There has been no Brexit dividend, as was claimed by the campaigns during the referendum. The only result has been self-harm, with more to come, I fear, when EU and UK standards inevitably diverge—and they will—as people develop new products and so on in different contexts.

As reports issued this week by the Resolution Foundation and the Midlands Engine trade body highlight, this convergence carries the risk that the UK could be squeezed out of supply chains in the advanced manufacturing markets. By the way, manufacturing is sometimes written off by many economic commentators, but nearly half of UK exports are manufactures and nearly half of them go to the EU. Manufacturing really matters to this country.

What can we do to handle the divergence? First, it is important that we recognise it and that government, industry and trade unions start to think strongly about how we can avoid it. Will we copy the EU as much as we can to minimise divergence or do we have exciting new avenues to go down that will lead us to a better situation than we are in at the moment?

Would the Minister perhaps agree with me that the UK’s unique economic model might deserve some urgent attention? There are different models of capitalism: American, Nordic, German and, as we heard from the noble Lord, Lord Howell, Japanese. Ours, compared to theirs, is exhibiting some alarming, glaring weaknesses.

How is it that a private equity outfit such as Macquarie can acquire public assets using debt-laden finance, and then borrow further against those assets and the stable income streams that infrastructure companies generally have, and then pay out generous dividends and executive bonuses unrelated to the service levels that are being provided? Look at Thames Water. It has been in the news recently for its appalling performance in managing the biggest water catchment area in the country. Now we know that, financially, it is in big trouble and a possible candidate for nationalisation, because nobody else is likely to take it on. That is because of being initially laden with debt by Macquarie. Other British companies are labouring with the weight of debt not borrowed for investment in technology or for improving the skills of their workforce but to pay out dividends and executive bonuses related to shareholder value.

What can be done to make our model more long-term? Maybe we should look at how others are handling matters like this and aim for those kinds of cultures, encouraging social partnership and worker participation to grow companies’ world market share—get everybody involved in it. As my noble friend said earlier, there are many lessons to learn from other countries. We should not, by the way, be afraid of intelligent protectionism. I would like us to look closely at what President Biden and his team are doing.

Finally, what are British business schools doing to rectify some of the problems we have been talking about? I think there are too many financial engineers being turned out and not enough real engineers.

Budget Statement

Lord Monks Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Monks (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Willetts, and pay tribute to the stimulating work being done by the Resolution Foundation, of which he is chairman. I hope that other noble Lords opposite have taken note of his speech. It would be a pleasure to hear rather more of its kind in this House, particularly from those Benches.

This debate takes place against the backcloth of our risky exit from the EU single market, now compounded by Scotland’s possible exit from the UK, which is also hugely risky. The UK’s economy, including Scotland’s, will be in the eye of consequential political storms, buffeted by multiple cross-currents and uncertainties. How robust is our economy going to be? Bill Clinton’s advisers famously said: “It’s the economy, stupid”, that motivates voters. Not at the moment, it is not. Politics is overriding economics; hearts are ruling heads; nationalism is trumping common sense. This is very evident in the reckless decision that we are making to leave the single market and the customs union—this hard, clean Brexit. It is also evident in Nicola Sturgeon stirring up the Scottish independence question at a time of exceptional fragility for Scotland’s economy. On current form, an independent Scotland’s first act could well be to seek a bailout from the IMF.

We have to look squarely and honestly at our economic situation. As we have just heard, the millennial generation is earning rather less than its parents. Average living standards have been stagnant since 2008 and are forecast not to increase for several years, with the main burden falling on low-income households. As the Chancellor—and the Minister today—has recognised, the UK has embarrassingly low productivity levels. Although I welcome what has been said about boosting technical training, I look in vain for steps to stimulate business investment and longer-term perspectives in company management. The Chancellor has, apparently, killed off the Prime Minister’s plan to provide for workers to serve on company boards. This is a bad mistake. As the Bank of England found recently, three-quarters of companies put investment behind mergers and acquisitions and paying dividends. Short-term profit maximisation, linked to excessive executive pay, still rules in too many of Britain’s boardrooms—and it is getting worse. Worker representation at board level would help counter that.

In the 40 years to 2007, investment growth averaged 5% a year. For the eight years since the crisis, it has limped along at 1.5% a year. We have to add to that mix the fact that many of our best businesses are foreign owned. From investment banks to car companies, from energy companies to football clubs, overseas ownership is now extensive. Many came here to participate in the single market and they are becoming more and more agitated—rather quietly, in my view—about the risks of the UK leaving that market and crashing over the cliff of no agreement with the EU. I understand that they are employing armies of consultants to assess their options. I wish they would articulate more forcefully their concerns about the current situation and what they fear. They have been too deferential and tactful in public. I bet they would not be like that if a Labour Government were in power.

We have enough problems without self-inflicted ones. We know about the pressures on the NHS; about the huge problems in social care; and that tax revenues fail to cover our spending at governmental level and in the case of many households. We live on tick at many levels in our economy—and it seems to me that this is more likely to get worse than better. We see public services under strain and stress. Zero-hours contracts in the labour market and bogus self-employment, which the noble Lord, Lord Willetts, hinted at in his contribution, are surging. We should remember that a zero-hours contract often means for an employee or a worker zero loyalty to the firm for which they work or by which they are employed. That is not the basis for quality or better productivity.

Employment growth apart, our economy is fragile, so my call today is for the Government as a first step to revisit their decision to quit the single market and the customs union and to try to stay in it, perhaps initially as a transitional, provisional measure pending the negotiation of a comprehensive trade deal. This step would cut at a stroke the number of uncertainties. My message today is, “Save us from that clean, hard Brexit”.

Economy

Lord Monks Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Monks (Lab)]

My Lords, I thank my noble friend Lord Haskel for bringing to our attention the need to face some serious, ongoing problems with the British economy and to face some of the truths about our position, which, as the noble Lord, Lord Low, and other noble Lords have said, is fragile in some important respects.

First, I will just mention a truth about our position from economic history. The crisis of 2007-08 did not result from lax public spending; it was caused by banks acting irresponsibly and by the failure of too-light-touch regulation. My view is supported by a recent House of Commons briefing, which points out that the average public deficit from 1997 to 2007—the year of the subprime problems and the crash—was 1.4%, half the average public deficit under Margaret Thatcher and John Major. Even after the crash, yields on 10-year bonds rose only marginally up to the 2010 election. The idea that public spending bust the British economy is completely wrong. I know that there was success in standing up that view at the general election and more generally, but it is important that, after the election, we face up frankly to what the real position was.

In the short time that I have available, I will talk about two current matters. One is the manufacturing sector, which, let us face it, is too small in Britain now. There is not enough of it, and when we talk about rebalancing the economy, we are looking round for areas to promote the growth of manufacturing. I was a member of the advisory panel for the regional growth fund under the last Government, and we struggled to find suitable places to put public money behind manufacturing. I was struck too, as many are, by the preponderance of foreign-owned companies in many of the key sectors—not just the car sector but many others. The leading companies are not British. There is welcome inward investment, which sets a good example to others, but none the less they are not British-owned. It puzzles me why Eurosceptics are so touchy about any infringement of national sovereignty that might squeak out of Brussels but are totally relaxed as soon as it comes to takeovers and deals from abroad. I do not know whether this is about the fees they are earning from the deals being cut, but I would ask the other side why there is this difference in their approach to our national assets.

That brings me on to a quick word on the City, which still seems largely disengaged from attempts to inject dynamism—or balance, as the Government call it now—into the British economy. The City seems to remain short-termist. It is wedded to the deal and financial engineering and to trying to generate fees from as many rearrangements of companies as it can find, rather than being interested in the organic growth of the British economy. It is a paradox that we are in the middle of a city that is perhaps the most dynamic in the world for financial services, yet we are dependent, for example, if there is a third runway at Heathrow, on Chinese and Middle Eastern investors. It will not be British investors behind what I would think would be a sure-fire return.

My final point is about business schools. Does the Treasury take an interest in what they teach? Those of us who have some experience in business schools know that the demand from students is to learn more about financial services and financial engineering and how to arrange money in the most lucrative ways. It is not about training people to be cadres in manufacturing and to lead organic growth in great businesses over the next period.

So there are questions for the Minister on the City and business schools, in particular, and on foreign ownership. We debated productivity the other day, so I will not run over those points again.

United Kingdom: Productivity

Lord Monks Excerpts

Tuesday 8th September 2015 Lords Chamber

[Lord Monks (Lab)]

My Lords, I share the Minister’s football allegiances. I welcome most of the things in the Government’s document, to which he has been speaking, especially the ideas of a training levy and of the northern powerhouse, for which he has particular responsibility.

These worries about British productivity are not recent. They can be dated back to the 1870s by some people, when it was recognised that we were slipping behind the United States and Germany. It has troubled successive Governments since then. The high oil revenues and financial services bonanzas of recent decades took the pressure off, but it is back with a vengeance after the crash of 2008—there are no bonanzas around. Our productivity rates are such that it takes a British worker five days to do what a French worker does in four, which is a pretty stark comparison with a country of a similar size, importance and development. Our productivity problem is caused in part by the problems addressed in the Government’s document and which have been listed by the Minister. However, I want to apply my remarks to other factors that do not get the same prominence in the document.

Take executive pay: poor productivity is to a large extent a consequence of low investment in equipment and skills, and a major cause of that low investment is the incentives governing executive pay, particularly the practice of rewarding short-term success. Since 1990, despite the recent welcome improvements to which the Minister referred, investment in the UK declined from 26% to 17% of GDP. How much a company chooses to invest is, of course, a decision for its managers. The way they approach that decision inevitably depends on how they are rewarded and what their incentives are. Bonuses encourage executives to emphasise the short term, for which they are rewarded, and as a result give less weight to the long term, often despite exhortations to the contrary. Andrew Smithers said in a recent article in the Financial Times:

“Ten years hence, shareholders might rue your decision to cut investment or raise prices”,

but you probably will not be around: you will have taken the money and gone. To raise investment levels we need to change executive pay systems, linking them more to market share and organic growth. These are common criteria in German executive pay systems and in other EU countries comparable to ourselves, all of which have enviable productivity records.

Executive pay is linked to the wider problems of British corporate governance. Our model of capitalism—a word we will perhaps use more and more in the Labour Party in the near future—provides a privileged place for shareholder and shareholder value. As I said, the resulting focus is on short-term results. Some executives I know dream of a generous takeover bid and the windfall that it would provide for them. That dimension of corporate governance being short-term oriented is very important for looking at the productivity problem. It means that there is less emphasis than should be the case on relations in the workplace between employees and management, between unions and employers and generally on ensuring that a place works as a good proper team that is well motivated, well skilled and well equipped.

An excellent recent publication—referred to, I was pleased to hear, by the Minister—by ACAS on productivity highlights some of these factors. In too many British companies, there tends to be a premium on financial engineering as the core competence. The finance function tends to rule: the accountant is king in the decision-making process. It is a bit like making the scorer the captain of the cricket team. Add to this the strengthening view that sees the firm as a contracting unit, with the employment contract no different from other contracts—a market transactional relationship. The result is a growth of non-standard contracts—zero-hours contracts have perhaps been most in the news recently. Self-employment is growing. The Uber kind of employment relationship is also developing in many areas. These are not conducive to high-skilled, high-commitment workplaces. They may work in certain service trades, but they do not work in factories doing difficult things, nor in services that need to be provided consistently to a high quality over many months and years. This is, if you like, the dark side of the much-vaunted flexible labour market.

Indeed, any attempt to rebalance the economy or develop an industrial strategy without taking the workplace centrally into account will end in failure, as too many initiatives have done before. The emerging picture is that of a UK that is too often pressing workers to work harder and longer, not one where the emphasis is on employees being encouraged to work more skilfully and to be smarter in the way that they approach things. Not enough of our firms are seeing the clear link between improved productivity and workplace-management approaches to their employees. I believe that central to any such strategy that involves improved workplace relations is dialogue. In successful examples of high-productivity workplaces, managers working closely with union representatives has often been key to improvement.

Hardly a week goes by without seeing pictures of the Chancellor in a hard hat visiting a successful factory. I hope he recognises from these visits the constructive role that unions have played in companies such as Rolls-Royce, Airbus, BAE, GKN and all the car plants, in improving productivity and performance. Instead of encouraging more of that, I am sorry to say, the Government are again attacking unions through the Trade Union Bill, soon to come to this House. Clouting unions is not the best route to high performance. Instead, the way to go is developing social dialogue arrangements to deal with issues such as skills and work organisation, as they do as a matter of course in some high-productivity countries such as Germany, the Netherlands and Sweden. It is time to bring our corporate governance arrangements more into line with those practices, even to the stage of having more diverse boards, not focused just on the short term but including other interest groups with a longer-term perspective, because they work there or they have a factory located in the relevant city or area. That seems to me very important.

Study after study has shown that consultation and involvement in workplaces bring improved job satisfaction and performance. Therefore, I ask the Minister, building on his talks with ACAS and Sir Brendan Barber, to fill in the gaps in the document and bring employment relationships much more into the debate that we are developing on this very important subject of productivity.

Queen’s Speech

Lord Monks Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Monks (Lab)]

My Lords, I add my congratulations to the Minister on his maiden speech. He brings, among many other things, a much-needed lustre to a group much mocked and reviled in recent years in this House and more widely: I refer of course to supporters of Manchester United. Congratulations, too, to the noble Lord, Lord King, on his debut.

I had hoped that the Conservatives had exhausted their supply of bile against British trade unions and that the ludicrous dollop of red tape in the recent lobbying Act was the final scrape of that particular barrel. Clearly, though, there is plenty of bile left, as the original step-by-step approach of the 1980s is reappearing. A new Bill is proposed that aims to hobble trade union action still further. We are threatened with more curbs on balloting, with thresholds that no other organisations have to satisfy, as has been mentioned by my noble friend Lady Donaghy. Labour agencies would be allowed to bust strikes, which is something that those agencies do not even want because they do not want a reputation like that. We are threatened with changes in facility time for representatives along with contracting in to political contributions rather than contracting out, an old threat that has been revived as an attack on unions’ campaigning ability, whether or not they are anything to do with the Labour Party. This agenda is tribal hostility, no more, no less.

Noble Lords will be thinking, as I am a former general secretary of the TUC, “He would say this, wouldn’t he?”. After all, who today is afraid of the union wolf? It may still be bad but it is not very big—not as big as it used to be. However, join me for a moment in reflecting on the following truths. There are 6.4 million people in trade unions. I see that just this week the Royal College of Midwives joined the TUC: that is the kind of people that trade union members are today. Collective bargaining covers 30% of the workforce. Union membership is not just confined to the public sector, as I often hear; it remains the norm in most UK companies with more than 500 employees. Last time I looked, 41 of the FTSE top 50 were unionised companies; I could list them but your Lordships know all the household names that I would refer to. Thousands of agreements are made every year. Strikes are infrequent and relations are generally constructive.

So why are the Government so set on clouting unions again? Why is that a priority at this time? There are many features of the British labour market that work far less well than collective bargaining and the trade union role. The Minister and others in today’s debate have rightly put productivity at the heart of the country’s problems and of the Government’s programme, and I welcome that. We lag alarmingly behind comparable countries and it is not easy to turn things round. One thing that it is unwise to do, though, is pick a fight with one of the component parts of improving productivity, the trade unions. That was a gap in what the Minister said earlier—the need to involve and engage people, not just train them, though that is very important. Bringing people with you, getting their morale up and making them feel respected and worth something is very important if we are to make it to the premier league of productivity. Unions are an important part of that, not just something that is marginal or that can be given a kick now and again with no consequences.

It is not just productivity where the union role is important. Take inequality, which has alarmed even the IMF, the World Economic Forum and the CBI in recent months and years. When union membership was higher and collective bargaining covered 70% of the workforce, directors and other top executives knew that they could not help themselves to an annual, possibly double-digit pay increase, often regardless of performance, without facing the possibility of a wave of militancy of people claiming comparability. In the past 30 years, though, too many have adopted a self-service culture, feeling free to help themselves to a large chunk of the company income. To a large extent, that is now recognised across the political spectrum.

In the 1920s, a period of union weakness, Stanley Baldwin, the Conservative Prime Minister, worried about boardroom greed and rising inequality. His solution was to build up institutions for collective bargaining through the then new Ministry of Labour. Baldwin also acted to bring in contracting in to the political levy, so he stops well short of being one of my political heroes. But what he did on collective bargaining is certainly relevant to today, and I hope that the more fair-minded and long-sighted Members on the Benches opposite and more widely will recognise that that is important.

We need influential and constructive trade unions to sort out decent living wages. It cannot all be done by law and it will not all be done by voluntarism. We need proper information and consultation arrangements. We need decent contracts with people that respect them, rather than just putting them on humiliating zero-hours casual bargain-basement contracts of the kind that are too prevalent today. A genuine one-nation Government would recognise that the need to boost productivity and promote long-termism in business cultures is interfered with by any tribal instincts of some in the Conservative Party to give unions a kicking.

This Bill deserves tough scrutiny in the House. I hope that we see a bit more of the spirit of Baldwin and rather less of the venom of the 1980s. Is that just too much to ask?

Pension Schemes Bill

Lord Monks Excerpts

Monday 12th January 2015 Lords Chamber

[Lord Monks (Lab)]

My Lords, I declare an interest as the president of BALPA. I congratulate the noble Lord, Lord Balfe, on the first pro-trade union speech from that side of the Chamber that I have heard since I came into the House—it was a pleasure to hear.

[Lord Balfe]

Did the noble Lord not hear my other speech?

[Lord Monks]

I am sorry, I did not, but this one made for a nice change and I commend that example to the rest of your Lordships on those Benches and hope to hear more remarks of that kind.

The noble Lord, Lord Balfe, has admirably covered the BALPA case. Monarch Airlines is the current case, and BMI was the previous one. We are beginning to struggle as these airlines in trouble pass their pensions obligations over to the Pension Protection Fund. There are other similarly paid workers in the same category. I hope that the message of this amendment is that though this cap is essential—I understand that very well, as the noble Lord, Lord Balfe, does—in order to stop exploitation of the fund, which after all is contributed to by well run pension schemes around the country, it is very important that we take those obligations seriously.

The cost to the fund is not enormous; it is quite modest. I hope therefore that the Government will consider the idea of a review of the arrangements around the cap and that we can get extra justice for some people who are hard working, who do responsible jobs, who are not fat cats and who deserve rather better than they have had recently from the fund. I am very happy to support the amendment in the name of the noble Lord, Lord Balfe.

[Baroness Warwick of Undercliffe]

My Lords, I want to make a brief comment on this amendment since I am a non-executive director of the Pension Protection Fund. I declare that interest and hope that I can offer some thoughts that may be helpful to the Committee. The PPF was set up by the Pensions Act 2004 to be a lifeboat for members of defined benefit pension schemes whose sponsoring employer has become insolvent, leaving the scheme in deficit. The PPF saves thousands of members from potential penury who otherwise would have received only a small fraction of the pension promised to them in their employer’s scheme. The benefits it pays to insolvent scheme members are paid for, in large part, by a compulsory levy on other DB schemes with solvent employers, which of course is a cost on the employer.

When the PPF was set up, it was always recognised that there was a fine balance between on the one hand protecting those who had saved and who, through no fault of their own, were now the casualties of their employer’s insolvency, and on the other, not unduly penalising schemes which had made prudent assumptions or decisions, or employers whose businesses remain solvent, providing jobs and funding for their pension schemes. One way in which this was reflected was the benefit cap: the maximum benefits normally paid for someone who is not above the normal retirement age and drawing pension, are 90% of what the pension was worth, subject to a cap.

The cap at age 65 is currently £36,401 per year, which equates to just over £32,500 when the 90% level is applied. The earlier a person retired, the lower the annual cap is set, to compensate for the longer time the person will be receiving payments. So the full expectations of high earners who have built up a number of years in their schemes would not be met. The average annual compensation in payment per member in the PPF is just over £3,500 per annum, so the average PPF member has clearly received less than the amounts which would have been earned by high earners such as those who would be affected by this amendment.

The important point to note is that the PPF board has no role or responsibility in setting the financial limits in the fund. That is the responsibility of Governments. However, back in 2004 there was a general political consensus, which I believe still holds, that there was a need to balance the interests of members against the cost to those who fund the PPF—the levy payers, who ultimately are the employers and members of other pension schemes.

There is obviously a debate to be had about appropriate levels of compensation. I have every sympathy with those who have been made a pension promise that their scheme can no longer afford. However, that is a matter for the Government and I do not want to comment on it, except to say that the PPF board has an obligation to keep the fund’s finances on a sure footing in changing economic conditions. It has a particular responsibility to balance its liabilities within a reasonable framework of constraints so that it does not impose an undue burden on the pension schemes and businesses which pay its levy. The PPF also has to be sustainable over the very long term, and the level of protection given to pension scheme members has to be such as to make that possible. The PPF has faced some significant calls on its resources as a result of big household names going bust. At November 2014, the net deficit of the 6,000 PPF eligible schemes is £221 billion. PPF provides a protective wrap for these liabilities in the event of insolvency. The amount of levy that would need to be raised to cover all members’ benefits in these schemes would be much higher.

To add a final note of caution, requiring solvent employers with DB schemes to pay more levy for higher levels of compensation will not come without problems.

Young People: Alternatives to University

Lord Monks Excerpts

Thursday 23rd October 2014 Lords Chamber

Moved by

[Lord Monks]

That this House takes note of the case for improved alternatives for young people not attending university.

[Lord Monks (Lab)]

My Lords, I declare an interest as an honorary Fellow of the City and Guilds of London Institute with a long interest in the subject of apprenticeships that is before us today. With announcements on apprenticeships this week by the Prime Minister and recently by the Leader of the Opposition, apprenticeship is, at least for a brief moment, centre stage. It might even become a sexy political subject; it is well over time that it does so.

I have been involved during my whole career in initiative after initiative. I joined the TUC in 1970 to service the trade union members of industrial training boards and I have watched and been involved with many policy initiatives since to try to improve the position of young people leaving school with few formal educational qualifications and no real future in the academic world. We simply cannot say over that period—I share the sense of failure—that we have been successful. In 1970, 44% of boys leaving school at the minimum age went into apprenticeships. At that time only about 5% of girls went into apprenticeships.

At that time we relied, to some extent, on the levy grant mechanisms of the training boards, with the principle that if an employer trained, he got the money back that he had paid, and some more. If he did not train, he had to contribute to the costs of those who did. That was a Conservative measure, I might add—the Industrial Training Act 1964—but it did not survive. In the 1970s most of the ITBs faded away. Construction, as we have just heard, still survives and there are some sector skills councils trying to carry on the sectoral approach to skills.

The challenge was taken up by the Manpower Services Commission, based on the Swedish Labour Market Board—again, the Conservative Party implemented this idea. But at the same time as the commission was getting going, apprenticeships collapsed. Why that happened is worth a study; my own view is that they collapsed because employers decided that they were too expensive—that four years’ apprenticeship was unrealistic. They were aided by the way in which youth culture developed in the 1960s and the 1970s, with young people thinking, “Why am I having four years of relatively low pay when I could get a semi-skilled or even unskilled job that pays much better? I’d like the money now rather than wait for it”. After that, in the early 1980s, many companies that had been exemplary trainers disappeared or became a lot smaller. Only a few sustained apprenticeships.

Despite many initiatives since and despite recent improvements under this Government and the last one, we still compare poorly on apprenticeship recruitment levels with other comparable advanced countries. Only 10% of UK employers currently take on apprentices, compared to three to four times that in Germany, Austria, Sweden and Australia. The most recent growth in the UK has been among older apprentices—at level 2 rather than the level 3 that is the norm in other countries. They tend to be in service sector occupations, where training has tended to be shorter and less stretching than it would be in manufacturing. Even so, only 5% of 16 to 18 year-olds are on apprenticeship programmes at present.

The institutional framework has something to do with our failure. In the past 30 years, there have been 61 Secretaries of State responsible for skills policy. Each has had their own agenda; each has wanted to make their mark on national life. Between them, they have produced 13 major Acts of Parliament and the policy area has been flipped, and sometimes flopped, between different government departments—and sometimes shared across multiple departments over the same period. There has been a succession of major reviews in this area by very good people, including the Dearing, Beaumont, Cassels, Tomlinson, Leitch, Wolf and, now, the Richard reviews.

Qualifications have been subject to bewildering and frequent change, with NVQs, GNVQs, AVCEs, applied GCSEs, diplomas, and now the current range of qualifications that is emerging. If you are still with me after those acronyms—and this is a wonderful area for acronyms, unintelligible to anybody but the most dedicated, never mind young people, their parents, employers and schools—you will probably agree with the House of Lords Economic Affairs Committee, which reported that,

“the system has suffered poor leadership and a string of initiatives that have not been implemented”,

properly. That is putting it politely.

All this tinkering, well exposed in a recent City & Guilds publication, Sense and Instability, has caused confusion and conflict. The battle rages still between the concepts of training young people to work in specific jobs and ensuring that training is broad enough so that occupational choices are not unduly limited.

This should be an area in which it is possible to build a longer-term national programme. That is what they have managed to do in those other northern European countries such as Germany and Austria, where social partnership agreements are the basis of respected and prestigious training. I was very struck once, on a visit to an engineering and technical school in Vienna, to see the 18 year-olds being taught in English. These were people who left school at the minimum age. Similarly, in a Dutch vocational college for catering, hospitality and so on, the requirement at the end of the course was to pass English at native level. That was an eye-opener to me, when I compared it to many places that I had visited in the UK.

There are initiatives. Labour is committed to boosting the number of apprenticeships to match the numbers going to university by 2025, using the Civil Service to start a fast-track scheme to hire non-graduates, forcing public sector contractors to recruit apprentices under new procurement regulations and giving employers more control over training funds. The Prime Minister this week committed to delivering 3 million more apprenticeships by the end of the next Parliament, by cutting unemployment benefits for 18 to 21 year-olds and introducing a youth allowance limited to six months, after which people will have to do an apprenticeship and a traineeship or community work. Housing benefit will be stopped for people of that age, the money saved going towards apprenticeships.

The latest review—the Richard review—focused on improving the quality of apprenticeships and the concept of industry being given greater responsibility for frameworks and standards, with a new emphasis on level 3 apprenticeships, higher expectations in English and maths, although not foreign languages, and grading as a key element of the level that people can attain. In a sense there is plenty going on, and the subject is receiving more political attention than it has done for some time. Additionally, the Government are consulting on channelling funding to employers rather than providers, although that has its own controversies.

Apprenticeship is an area in which trade unions play an important role. As the OECD noted recently, in countries with a long tradition of apprenticeship training, unions are a key player alongside employers and the institutional actors. In the UK, the TUC unionlearn programme continues to support high-quality apprenticeships that pay a decent wage, encourage equality and diversity in the recruitment process and aim to drive up employer demand and promote that in day to day work. The TUC broadly supports the Richard proposals.

We do have to change. Another OECD report made the following statement and, although I have not had a chance to check whether it is true, I put it before the House today. The OECD said:

“England is the only country in the developed world where the generation approaching retirement is more literate and numerate than the youngest adults”.

Skills shortages still exist in many areas where there is high youth unemployment. This mismatch and dysfunction is a feature that many people have tried to tackle and many people have not succeeded in remedying. There is a need for a wake-up, to which I hope that this debate will contribute. This is a plea to all parties to make a big effort to build up a stable national scheme for apprenticeships involving all the different stakeholders. It is not easy—a lot of good people have tried—but it is necessary to try again. We have had many useful initiatives, but few overall convincing plans. We have good apprenticeship schemes and some excellent companies, but not enough. I also like the university technical colleges. I went to a technical school myself, and a bit of the old-time religion might be useful in this area.

It is worth pausing a moment to look at what some other countries are doing. Germany, worried about the attraction of the academic stream to better-off young people, is now trying to make apprenticeships glamorous. For example, there is a programme to recruit apprentices internationally, offering £700 a month net, with free language lessons, relocation costs and paid visits home. That could threaten our fragile system, too, if young people wake up to this new, perhaps more glamorous alternative to traditional apprenticeships and higher education.

I have one final point. There continues to be much self-congratulation in Britain about our so-called flexible labour market, but flexibility too often means that anything goes in the world of work; it often means cheap and low-skilled work by low-productivity workers. The flexible labour market can undermine good training schemes. Let us remember what the Conservative Government of the 1960s tried to tackle—those employers that did not pay for training but poached people from those employers that did pay. We still have that problem, filled at the moment by a massive state subsidy to everybody to keep the numbers going in an upward trajectory.

The professions do not have a flexible labour market. They have regulated entry and training; you cannot just call yourself a doctor or a lawyer. Why is it so different for car mechanics or skilled catering workers? This is a manifestation of the “two nations” again. You should not be able to practise as a skilled worker in a crucial job without proper qualifications. Obviously, you cannot do this overnight—you would need a long transition period—but that should be the direction of travel. That should be a central feature of the next phase of the development of apprenticeships for young people in the UK. Employers who do not train should pay towards the costs of those who do. Noble Lords should remember that that was a Conservative Party principle of the 1960s.

We should aim to have a more settled institutional framework—not treating training as a Whitehall version of “pass the parcel” between departments, some of whom do not really want it—at some stage in the future. A new Department of Employment would be my proposal to deal with this issue and some other aspects of the labour market, too. In these ways, with clear principles and less jargon and acronyms, we can develop an apprenticeship system of which to be proud. It should be one that widely encompasses girls as well as boys and that reaches out to minority communities; one that is a genuinely attractive alternative to the higher education route; and one that raises the nation’s woeful productivity rates, which cause so much concern to so many of us. It should also give young people—regardless of race, ethnic origin or sex—a decent start in an uncertain world of work, and narrow the skills gaps with our North Sea neighbours. We can do better; we must do better.

--- Later in debate ---

[Lord Monks]

I thank the Minister for her conscientious reply. Those who await her follow-up points in a letter do so with bated breath. I thank my noble friend Lord Young for his remarks. I am not sure that he got apprenticeship to be sexy, but he keeps trying and is always very interesting on this subject.

I thank everybody who contributed to this important debate. We must raise the attention, interest and dynamism behind the area of vocational education and training for these young people, and I hope that this is the first point in a lot of attention that this House gives to the subject.

Motion agreed.

Families: Cost of Living

Lord Monks Excerpts

Thursday 31st October 2013 Lords Chamber

[Lord Monks (Lab)]

My Lords, I, too, thank my noble friend Lady Prosser for initiating this very timely debate, which inevitably will be at the centre of the national conversations and debates as we come up to the next general election.

It is usually very nice to be part of an organisation that is top of the league. However, on this occasion it does not feel very comfortable to know that the UK is currently the EU’s inflation champion. Our rate last month of 2.7% was more than double the EU rate as a whole. In the wider OECD only three top us—Turkey, Mexico and Iceland. It is worth asking why we are in this uncomfortable position of being the EU inflation champion. Several factors have clearly played their part. One might be quantitative easing which boosts asset prices and thus favours the people who own the assets who are already wealthy, and in turn contributes to further rising inequality. It does nothing for most wage and salary earners who are the main source of effective demand and spending power. As the noble Lord, Lord Skidelsky, put it recently in the House, the winners are not the have-nots but “the have-yachts”.

What about the other factors behind inflation? Devaluation of sterling has certainly been a factor. The big fall in the pound in 2008 has probably mostly worked its way through now but there was a very strong inflationary effect, as one would expect given that we are a major importing economy.

The contrast with Ireland is stark. Ireland has had a very bad recession but it has also had some good things going for it. Whereas we have had a 20.7% increase in consumer prices over six years, Ireland’s rise was 3.2%. Food and drink prices have gone up by a hefty 35.9% in the UK in the past six years, but the Irish rise is 1%. The energy comparison is nearly as stark. The Irish rise is half ours and they do not have North Sea oil and indigenous sources such as we have.

I make it absolutely clear that I would not have liked the UK’s property bust to have been as severe as the Irish one has been. However, periodic devaluations have imposed big costs on us whereas that has not been the case with the euro. That is not a debate for today and I do not believe that the British economy was strong enough to hold its place in the euro in recent years. However, that situation shows that there is a cost to not belonging to a currency from which the Irish have benefited, at least as far as inflation is concerned.

My other concern is about pay, which other noble Lords have mentioned. Average real pay is down by 7.5% since 2008. Higher paid public sector jobs have been replaced with lower paid private sector jobs, which in turn have depressed demand. This problem was faced by many people before the recession, not just during it. Even when growth was healthy average wages barely grew and were negative for the lowest earners. Only the top 5% experienced faster earnings growth. The poorest half of the population has borne the brunt of the shrinking wage pie—a 25% drop since the late 1970s—with the winner being the increased share of profits in that pie. If profits had been ploughed back into investment, and therefore into growth, that might have been justifiable. However, that is not the case because the low rate of investment is another area where Britain is vying for top place in league tables in the European Union.

What can we do about all this? I know that the Minister thinks about these matters and I listen to his comments with great interest. However, can we not think about doing something about the following? What about the business culture in this country? The bonus system gives executives the incentive to use cash to buy back shares or to sell assets rather than invest in new capital and equipment. Bumping up the share price prompts executives to push up prices to keep profit margins high even when demand is weak and even though in the longer term the business is made rather anorexic. The bonus culture as it is creates an inbuilt bias against investment in new machinery, training and things that look like immediate costs but are benefits in the long term, and contributes towards inflation. This is not an insoluble problem. In Germany, after all, bonuses are tied not just to shareholder value but to growing market share, to organic growth. There is another factor in the bonus system and that is not the case in most outfits in this country.

How can we make an overdue change in that direction? The fact is that Britain needs a pay rise, as has just been said from across the House. Stagnating pay packets only depress demand and fuel borrowing on credit, and we have had too much of that in Britain in recent years. It also means reduced tax receipts and so intensifies our economic malaise. How about raising the minimum wage at least to its original real value? I know that the Government are beginning to look at this but can they accelerate that process and act on it urgently?

How about encouraging a new interest in the revival of collective bargaining in the private sector to help ensure that workers get a fair share—a fairer share than they are getting at the moment? One thing we do know is that inflation is not being wage-driven, which might have been the case in the 1970s but is certainly not the case now. As others have said, can we establish a mechanism involving collective bargaining for introducing the living wage concept? Trade union weakness has undoubtedly been a factor in the declining share of pay in the national income and in the growth of some undesirable things in the modern labour market such as zero-hours contracts, too much use of temps and agency staff, the ease of outsourcing and so on. The flexible labour market was supposed to generate faster growth and higher productivity. Does the Minister agree that it is now actually holding back growth, curbing demand, depressing purchasing power and making the economy go rather slower than it should be going in the right direction?

These are complex matters and I do not argue with that. They have been going for a long time and I do not argue with that either. I look forward to the Minister’s reply and hearing whether the Government are able to think strategically about what we do about a totally unsatisfactory situation.

Economic Inequality

Lord Monks Excerpts

Wednesday 23rd October 2013 Lords Chamber

[Lord Newby]

My Lords, there has been a very long-term increase in inequalities in wealth. This is largely based on inequality in housing, which is where the vast bulk of personal wealth belongs. In terms of getting a more balanced economy, whatever we do about wealth and inheritance, which has proved very difficult—and proved very difficult for Lloyd George—the key is to get more people into better paid jobs.

[Lord Monks (Lab)]

My Lords, does the Minister agree that generally the more equal the society, the better the outcomes in a whole range of economic and social indicators, from health and education through to teenage pregnancy and so on? With that in mind, and the fact that real wages have declined by £1,500 since the general election, what practical steps are the Government taking—for example, by increasing the national minimum wage as a matter of urgency?

[Lord Newby]

My Lords, as the commission found, there is a growing problem of in-work poverty. That is why my colleague, Vince Cable, asked the Low Pay Commission last month to look at the possibility of raising the minimum wage without damaging overall levels of employment.

Economic Prosperity and Employment

Lord Monks Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Monks]

My Lords, I, too, thank my noble friend Lord Haskell for initiating this timely debate. The state has many roles. Often it has not sought them, but has had them thrust upon it by the failure of markets in important respects. At the moment, the list of roles tends to grow as the country’s problems are no longer masked by the windfalls of the North Sea and booming financial services; they are not completely over, but they are a lot less significant than they were. The problems are not new—economic historians trace them back to the 1870s—but they seem to be getting worse in some fundamental ways: the shrinkage of manufacturing, a persistent balance of payments deficit and too few companies still thinking for the long term, with a relatively low spend on innovation and training. Investment in new machinery is apparently at a lower level than in Austria, Turkey or Mexico. The low productivity levels that we are experiencing reflect inadequate skills, low capital investment and, sometimes, poor relationships at work.

While we are proud of our open economy, can we really be so relaxed about the continued foreign takeovers of successful British companies? The latest is Penguin Books, which has recently been taken over by a smaller rival, and it seems that Invensys is shortly to go as well. There is no comparable traffic in the opposite direction, nor is there a flowering of new UK companies of the same size and importance. A large part of what could be called the commanding heights of the economy is now held abroad. Too many managements and shareholders are governed by thoughts of value extraction—the price they can get—rather than adding value to what they have. There is not a squeak from Eurosceptics or Europhobes about what this means for national sovereignty. A small proposal from the European Commission sends them into paroxysms of anger but when this fundamental change is going on, nothing is said.

We also have a systemic tendency for rewards to go disproportionately to people at the top and for them to outstrip performance. The inequality statistics are truly frightening. Will the Royal Mail in private hands follow the same depressing path by charging higher prices and contracting out delivery services to lower paid, less securely employed workers? Then will we see the Royal Mail sold off, perhaps overseas, like so many of our privatised utilities? Must we watch helplessly as private equity or other predators move in for quick kills? Why are golden shares so out of fashion in developments of this kind?

The stark truth is that private ownership has not unleashed a fresh burst of investment. Thames Water and BT are seeking government guarantees for major investments in the super sewer and national broadband; there is not much appetite for risk among many of these large privatised companies. Centrica withdrew from the new nuclear power project because its shareholders wanted higher returns over a shorter period. This rather frenzied approach to short-term gains continues to enfeeble UK companies. If you add in the periodic devaluations of sterling, which make UK assets relatively cheap, you can see the vulnerability of our economic model.

Some are using the term “responsible capitalism”. I use it myself sometimes; it is a nice thought. However, there is a risk of many in the citadels of deal-making seeing it as an oxymoron and treating it risibly and not seriously at all. We have good economic models among our neighbours, particularly on the other side of the North Sea. Why do we not learn more from them and build, as others have said in this debate, a stronger training culture, foe example, comparable to their economies? Why do we celebrate so much a deregulated labour market while our northern European neighbours reject easy hire and fire, zero-hour contracts and the trend towards making jobs less secure? They are relaxed, even enthusiastic, about collective bargaining and extensive information and consultation arrangements.

Finally, what about our management cultures in this country? We claim some of the world’s leading business schools. I declare an interest as a visiting professor at Manchester Business School. However, they are often seen as transmission belts to put people into financial services or into the finance function of business—accountants and so on. How can they be transformed to become the staff colleges to make the UK a new, North Sea-style economy? The noble Lord, Lord Heseltine, has sought to address some of these issues and I believe that the Business Secretary recognises the problem, but as yet we are well short of measures to promote an economic model and culture that will be both successful and sustainable.

I end with a remark from a senior Siemens executive. When asked what the key factor in the company’s success was, he replied, “Continuity”. Would many top UK executives say the same? I doubt it. We must change that culture so that in due course they will consider that to be the normal way to describe their business.