Queen’s Speech

Lord Skidelsky Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai. We seem to be yoked together like a pair of terrible twins, perhaps on the theory that at least we understand what each other is saying even if no one else does. It is a great pleasure to welcome the noble Lord, Lord King, to this House, and the very powerful speech of the noble Lord, Lord O’Neill, promises strenuous mental exercise over the coming months and years.

Praise where praise is due: there are several good things in the gracious Speech. It is strong on aspiration and there are some sound implementing measures promised. It is a good idea to take people working 30 hours a week on minimum wages out of income tax. Can the Minister explain how many are expected to benefit from that measure?

I particularly welcome the goal of building a northern powerhouse, and look forward to the Cities and Local Government Devolution Bill, which will provide for an elected mayor of Greater Manchester and possibly elected officials in other conurbations. Elected mayors are vital to the strength of local government. Some of us on the House’s Economic Affairs Committee hearing evidence about HS2 were struck by the weakness of the northern voice. It would have been better, I think, to have started the scheme by reducing transport costs in the north of England rather than spending a huge amount of money in the next five years reducing train times from London to Birmingham by 15 minutes. Elected mayors in the big cities will help to redress the London bias which has too long dominated our economic life.

I welcome the aspiration in the gracious Speech to “full employment” and job security. I emphasise aspiration because there is no indication of how either goal is to be achieved. In particular, how does the aim of job security square with the large increase in insecure jobs over the last five years through temporary work, exploitative self-employment, zero-hour contracts, agency work and so on? Evidence suggests that about 5 million working-age adults are in such precarious jobs, and they account for much of the increased employment of which the Government boast.

This growing population of the working poor contributes to the amply documented rise in inequality, which has been growing since the 1980s and has accelerated since the onset of the crisis. Austerity has contributed significantly to this by reducing the share of income going to wage earners. The gap between rich and poor is now almost as great as it was before the First World War. This is morally unacceptable, socially divisive and economically destructive. In particular, it is a major cause of the collapse in productivity, to which noble Lords have alluded. I quote the Government’s briefing:

“Fixing the UK’s long-running productivity weakness is one of the government’s biggest challenges over the next five years”.


The noble Lord, Lord O’Neill, powerfully reinforced that, as did other noble Lords. Treating productivity as a long-run problem, however, disguises the fact that the most urgent problem is the collapse in short-run productivity. Between 2000 and 2008, productivity increased by about 2% a year, but since 2010 it has not grown at all. That is what is wrong with the argument of the noble Lord, Lord Desai, as it is not just a long-term problem based on the increase in unmeasurable service costs; it is what has happened in the last five years. That is what we ought to address, because most of the new jobs created since 2010 have been low-productivity jobs. How many people understand that the welcome fall in unemployment is the mirror image of the redeployment of many of the unemployed to low-productivity jobs? Real wages, as we know, have fallen since the coalition took office and apropos the noble Baroness, Lady Wheatcroft, most minimum wage jobs are not in companies that have shareholders. That is not the main problem here.

I do not want to rake over the coals of my long dispute with the coalition on economic policy. I do not doubt the Government’s commitment to sustainable growth but they see growth purely in terms of supply-side policy. It was assumed from the start that public austerity, by promoting the switching of production from the less efficient public sector to the more efficient private sector, would increase the efficiency of the economy. However, what that ignores is the effects of the policies on demand. At best, the Government have seen the problem of demand as a very short-run problem, not taking into account that a prolonged demand shortfall has lingering effects on supply. Economists have a rather horrible word for this: hysteresis, a word from engineering denoting the reduced capacity of a machine when it is disused or underused for any length of time. This has been happening to our productive system. Many, if admittedly not all, of our supply problems stem from the way that the labour market has adjusted to the austerity policies of the last five years.

The Government still hanker for supply-side solutions. Of course supply is very important but it is not the only thing. They promise to introduce a bill to freeze benefit rates and reduce benefit caps for two years, in order, they say:

“To ensure that it pays to work rather than to rely on benefits”.


Of course you can always force people to work by reducing benefits but you will then get wages chasing benefits downwards in a vicious circle. What good does that do for productivity? The Government promise 3 million extra apprenticeships, which is very good, but those apprentices will need jobs to go to. Rather than the mean-spirited assault on benefits, the Government should bring forward investments in infrastructure that provide decent jobs. The Government promise a British investment bank, something that I have been advocating since 2010—better late than never—but are silent about its scope and financing. I suggest that investment projects should be targeted at the areas of higher than average unemployment, as part of the rebalancing and northern powerhouse strategy. To boost demand, the Government should take steps to raise middle and lower incomes, which will provide confidence for firms to invest. Raising the minimum wage would be a step in that direction.

It seems to me that the Government’s post-crash growth strategy relies dangerously on recreating the pre-crash levels of private debt. This is a perilous course, which risks another collapse at no distant future. In short, is that what we want? Is this the best that we can do? I think not. Let us try to do better. Let this House give voice to that better future which the leaders of the defeated parties failed to offer at the last election.