Policy for Growth

Adrian Bailey Excerpts

Thursday 11th November 2010 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I welcome this debate. The Office for Budget Responsibility’s projections make it clear that if the private sector is to mop up the unemployment that will be created as a result of the Government’s policies in the public sector, we must have a rate of exports that has been matched in only one of the past 40 years, and similarly for private investment. That will have to happen year on year. That is a huge ask, and we must look at the world context to see whether it will help.

The economy in Europe is slowing down, and the G20 conference will consider the problems that are impacting on and threatening world trade. The international context is difficult, and added to that are, domestically, the VAT increase, depressed public demand and public expenditure cuts. The prospects are grim indeed. The Government have rightly highlighted the role of small and medium-sized enterprises in growing us out of recession. Indeed, around 65% of all new jobs are created by SMEs. But how will they do that in the context of the Government’s macro-economic policies, and without any coherent industrial strategy to deal with the consequences?

The strategy is predicated on the mythical assumption that somehow public sector investment was squeezing out private sector investment. That is not so. In areas of the country where traditional industries have declined, the public sector has generated private sector investment, and removing public sector investment will impact on private sector investment. I refer hon. Members to R3, the insolvency practitioners, which carried out its own survey. It pointed out that the loss of public sector contracts could result in 148,000 SMEs going to the wall. That might be a big exaggeration, but even if its projection is only half right, that would still be three times as many as went to the wall last year. That hardly suggests that the Government’s policies are going to enable us to grow out of recession.

The area that is particularly affected is the construction industry. It is highly dependent on public sector contracts in some parts of the country, and I am very worried about the withdrawal of public investment in that sector. May I make a request to the Minister? I would like him to look at the report produced by the predecessor to the Business, Innovation and Skills Committee under the chairmanship of the hon. Member for Mid Worcestershire (Peter Luff), which pointed out that a large number of insolvencies among SMEs in the construction industry could be avoided by using public procurement to promote project bank accounts to prevent cash-flow problems.

On manufacturing in general, I cannot understand the logic of a Government policy that reduces corporation tax, which will benefit the financial services industry, at the same time as introducing a tax to take money out of it, and paying for that by slashing the investment allowances to manufacturing industries that are a proven way of improving productivity, output and export performance. That has no coherence or logic whatever.

The Minister has commented, in a leaked letter, on the sub-regional reorganisation involving the replacement of regional development agencies with local enterprise partnerships, saying that RDAs were not delivering for small and medium-sized enterprises. I know a number of businesses in my constituency that have postponed investment decisions because they see the grants disappearing. They know that the regional growth fund represented only a third of the backing that they had in the past, and that it has a £1 million threshold. That is not going to help many SMEs. I could go on, but my central point is that there is no—

[Several hon. Members]

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