Economy: Growth

Lord Soley Excerpts

Thursday 16th May 2013 Lords Chamber

Moved By

[Lord Soley]

To move that this House takes note of the current level of growth in the United Kingdom economy.

[Lord Soley]

My Lords, the international financial collapse in this country and many other countries around the world produced a situation which in many ways was very similar to that of the 1930s and had a devastating effect on the economics of family life here and elsewhere. It is not something that was born and bred in the United Kingdom, as some people say. If anybody has doubts about the seriousness of the problem, they should look at the excellent BBC money programme on the subject—the second part of which was on last night, and there is a third part coming soon. One of the things that slightly troubled me about the speech of the noble Lord, Lord Deighton, in the debate on the Queen’s Speech, was his comment that,

“we need to complete our work in fixing the financial system so that it is able to sustain growth in the economy”.—[Official Report, 13/5/13; col. 143.]

He was absolutely right to say that. However, if we wait until we have fixed the financial and banking problems we will, frankly, have to wait at least four years before we can expect growth.

Although I, like everyone, hope that the outgoing chairman of the Bank of England is right, I cannot be sure. I have not argued much about whether we are in a second-dip or third-dip recession, but few people in this country or elsewhere would disagree that we have been bouncing along the bottom. Events in the euro area will be a further challenge to us, as I am sure the Minister will be the first to agree. Although I accept that there is a need to reduce the deficit, the key problem is growth. If we do not get growth into the economy we cannot deal with the deficit quickly enough. We will be constantly chasing our tail, trying to cut the deficit without getting back to growth.

Contrary to popular opinion, the United Kingdom has on many occasions had far worse debt-to-GDP ratios—sometimes up to 225%. Britain has never defaulted and has had one of the best reputations in the world for financial management, and we still have it. Interestingly, the Government were concerned enough to say that if we were not careful we would lose our triple-star rating, but when we lost it they said, “It doesn’t matter so much anyway”. It does not matter that much. If we can get growth to go back into the economy, we will deal with the deficit.

I remember a Minister—I cannot remember who—saying that future generations would never forgive us because we would be burdened with this debt for generations to come. This might be a good time to remember that we finally paid off the debt for the Napoleonic wars in the late 1990s. My worries when I was at school did not include the debt which had been dumped on us during the Napoleonic wars. Britain has always borrowed and done what most other advanced economies do; they grow themselves out of the debt problem. That is why growth is so important and what we should focus on.

As a politician I know the temptation among all political parties to blame the Government whom you are trying to replace for just about everything which has happened anywhere in the world including the weather—in fact, particularly the weather. At the last general election it was clear to me that the outgoing Labour Government had already lost the argument on this subject. The then Conservative Opposition and the Liberal Democrats were going round saying that this was the most desperate situation that we in this country had ever been in, but that was not true. It was not true that the deficit was the key problem. The international financial collapse caused the problem.

We talked ourselves down in that election. Once you do that, people will naturally pull back. They will not spend money—they tend either to save it or to wait to see what will happen, and that adds to the problem. The debt-to-GDP ratio showed only small changes between 1970 and 2010, and a number of economists are now stating that much more clearly. They say that history suggests that the current radio of debt to GDP is not alarming. If my views on that do not satisfy noble Lords, let me quote the IMF’s World Economic Outlook of October 2012. It states:

“Throughout the past century, numerous advanced economies have faced public debt burdens as high, or higher, than those prevailing today”.

That was the view of people such as Robert Neild, the Cambridge economist, and others who have said that the debt-to-GDP ratio is not alarming. That does not mean that it is desirable or that we should not reduce it, but it suggests that we have had the argument the wrong way round for the past few years, and that is what troubles me. I suppose that I am a natural Keynesian, and I felt that although we had to give the Government space in their deficit-reduction programme, the position should have been reversed and we should have been saying that growth comes first. If you do not get growth, your debt problems will be far worse.

I should like to provide another quote from the IMF’s World Economic Outlook. It states:

“First, support for growth is essential to cope with the contractionary effects of fiscal consolidation. Policies must emphasise the resolution of underlying structural problems within the economy, and monetary policy must be as supportive as possible”.

Again, I am not arguing that getting the right public sector and public debt relationship is unimportant. I am saying that you should use your fiscal policies to underpin policies for growth. The coalition’s focus on cuts in expenditure is a repetition of the 1930s, and only recently has it begun seriously to address growth. That is what I should like us to do a little more, and I hope that the debate will focus on it.

The key question is, “How do we get growth?”. Recently, the Government have rightly been saying that we need to do more on infrastructure, and they have mentioned a range of issues. I should like to deal with a couple of those issues.

It is beginning to be recognised—certainly by many economists—that you need to have a more balanced approach to how much you borrow in order to invest. It is no good borrowing simply to pay off debt. We all know that and no one has any doubts about it. Borrowing to invest, as long as that investment is leading to growth, is not a bad thing. That balance is right.

I agree that infrastructure is a crucial element that gives us opportunities. The United Kingdom’s infrastructure is not as good as it ought to be. I refer to the remarks of the noble Lord, Lord Deighton, who said:

“We are committed to creating a single local growth fund for the key areas of skills, housing and transport. The final size of the fund will be set out at the spending round next month”.—[Official Report, 13/5/10; cols. 140-41.]

I look forward to that. Quite rightly, he focused on two of the big issues that are always good for generating growth: transport and housing.

What has troubled me not just about the current Government but for a considerable time is that when they talk about transport, they are referring to rail and road and do not mention aviation. The Minister knows my strong views on Heathrow. Before he gets worried, I should tell him that I am not about to embark on a debate on Heathrow; this issue goes much wider. I have always argued that growth in aviation is crucial, and is important for the regions. The Government have placed great emphasis on high-speed rail. I agree with that and do not have a problem with it. However, high-speed rail deals with the transport of people, not of goods, whereas every aircraft that flies out of this country with passengers also usually has in its belly large quantities of high-value export goods. I shall mention Heathrow once and try not to mention it again. Only 0.001% of flights in or out of Heathrow are cargo aircraft. All the cargo comes and goes in passenger aircraft. The same is true for all our local regional airports. If you want to encourage exports, we must allow aviation to grow.

Therefore, my first question to the Minister is: are the Government taking seriously enough the contribution that aviation can make to growth? There is enormous potential there. It is no good telling people in Exeter that the high-speed rail line will help them because it will not. However, flights from Exeter airport to other airports around the world will help them. Birmingham Airport, which is currently trying to expand, needs to have permission to go ahead—again, because Birmingham can export more if it has growth. Therefore, the growth factor is very important.

There are two other points that I want to make in relation to aviation. First—again, the Minister will have heard this before—air passenger duty is a disaster for the aviation industry. It is massively outpricing us in competition with other countries and other airlines. We need to reduce air passenger duty. I know that we cannot do that quickly—it cannot be done overnight—but the duty is a major hindrance to the expansion of growth for the British aviation industry and that presents it with very real challenges at the moment.

The second thing that I have to say about aviation also applies to other areas of transport. One reason that aviation has not been focused on by successive Governments in the way that it should have been is the fear of climate change. I yield to no one in my concern about climate change. I first wrote about it back in the early 1980s and I still have the same views about it. However, I do not believe that you deal with it by closing down aviation. There is a terrible warning here from the way we conceded to the green movement the argument about nuclear power. Only now are we catching up with the green movement and saying, “Yes, we must have nuclear power”, when the whole argument against it was what held us back early on. The same is happening with aviation and we have to be very alert to that. All sorts of efforts are now being made—frankly, they should have been made earlier and I have been very critical of the aviation and aerospace industry on this—to deal with climate change issues through, among other things, fuel research, which is showing real possibilities.

The other area that I want to touch on is housing, which every political party is saying is important. We now have the Green Investment Bank and a business investment bank. It may interest the noble Lord, Lord Newby, that many years ago in the 1980s, when I was dealing with housing in the House of Commons, we put forward a proposal for a housing investment bank. The proceeds from the sale of council houses, which were very high at the time, would be placed into a housing investment bank, which would then receive matched money from the building societies and big building companies. They were very positive about that process and they wanted to do it. Unfortunately, the receipts from council house sales were simply used to cut taxes, whereas if they had gone into the investment programme, that would have been far more effective. I ask the Minister to look again at this possibility.

I am in favour of selling public housing up to a point. However, that housing must then be replaced, and you do that by having sufficient income from the sales to fund a replacement programme. That would enable us to have a steady housebuilding programme, instead of what tends to happen in this country, which is a lurching from excessive building to none at all. We have gone backwards and forwards with some pretty disastrous consequences, as we saw in the 1950s and 1960s.

My final point concerns the other area on which we need to be much more focused—the emerging countries. We have tended to talk about just the Brazil, Russia, India and China group but we really must not forget Africa. I have seen some very interesting articles. The other week, Chuka Umunna in the House of Commons made a very good point about this. Nigeria has a dramatically growing economy, as have many other countries in Africa with which we have good relationships. There is an expanding market there, particularly in high-tech goods. It is high-technology that can drive our expansion.

In conclusion, I hope that today we will look at how we can achieve growth. Over the past year or two, I have heard the Government shift their position away from simple deficit reduction to growth. Very recently, I have heard some of their suggestions on infrastructure, transport and housing in particular, and I should like the Government to say a bit more today about how they are going to deliver that growth. That is the key question. We could bounce along the bottom for a long time yet but, if we get growth going in the economy, frankly we will do what Britain did very successfully in the 19th and 20th centuries, which was to grow itself out of its economic problems. That is what most advanced countries do. I have the IMF on my side on this, as well as a large number of economists, so I think that I have quite a strong argument.

--- Later in debate ---

[Lord Soley]

My Lords, I am very grateful to everyone who took part in this debate. In his opening comments the noble Lord, Lord Marland, described vividly the work he is doing around the world to encourage British exports. I very much support that. Indeed, I was quite excited, so maybe we ought to have a word outside afterwards. I must declare an interest as the chairman of the Good Governance Foundation. He mentioned corruption and the rule of law, which is precisely what we are trying to do through the company. The amount of work available for British universities on promoting the rule of law is considerable.

The noble Lord, Lord Bhattacharyya, gave a very good speech on a wide range of things. I simply say to him that science and technology deserves a debate on its own when it comes to growth. The high-tech part, which I work with, deserves so much to be put forward. The noble Lord, Lord Bates, also mentioned the importance of confidence in the economy, and I entirely agree with that.

I was slightly disappointed by the Minister’s response because I feel that he slipped back a bit. Yes, Keynes did say to take interest rates into account, but in view of the fact that the noble Lord referred to the long term and the short term he should also remember that Keynes said, “In the long term, we are all dead”. That is perhaps worth remembering, but the important point was really what the IMF and various economists are saying. I simply remind the Minister of the quotation I gave from the IMF report: that many advanced countries had debt to GDP ratios much higher than we have now, and they have dealt with them through growth. It is the alarmist approach, which I thought the Government were moving away from, that undermines confidence, because it says to people, “Oh, we are like Greece”. Well, we are not. That was a silly argument in the first place. Britain is in a much stronger position and we should not talk ourselves down in that way.

Finally, because a number of people chided me again for my interest in aviation, let me say one thing about why this is so important. This is not about hub airports but about airports generally. It is not about the Davies report. I gave evidence to that and will do so again. It is that Britain invented the Industrial Revolution. The second stage of that revolution resulted in railways, which produced the first country in recorded history where manufactured goods could be delivered from one part of the country to the other in large quantities. In other words, we had the world’s first integrated manufacturing economy.

This is such an important point because what aviation is doing for the global economy today is what railways did for the British economy in the 19th century. We lost our lead on railways after the end of the 19th century. We still have the second most advanced aerospace industry in the world. Do not let us lose our lead in this as we did on railways, otherwise we will regret it deeply. Aviation delivers goods, and people, all over the world, and it does not require public money. Most of it can be done with private money, so your Lordships can relax a little more about debt. I thank everyone for this debate.

Motion agreed.