Growth Strategy

Anneliese Dodds Excerpts

Tuesday 21st January 2020 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It has been a pleasure to listen to this interesting debate. I was encouraged by some of the comments of the right hon. Member for Wokingham (John Redwood), whose position is perhaps more similar to that of the Labour party than he might be delighted to hear, but I disagreed with his conclusions in some areas.

When preparing for the debate, I anticipated that the right hon. Member’s take would follow his comments before Christmas, when he welcomed what he described as the “turning around” of the mood in relation to the economy by the Prime Minister, which will

“take some cash…and now is the time to spend a bit of that…That will show that the country has made wise decisions up to this point, and that Brexit will not be damaging to our economy”.—[Official Report, 19 December 2019; Vol. 669, c. 65.]

Of course, that is a bit of a change from some of the advice that we have heard he gave to investors not to continue to invest in the UK.

[John Redwood]

I wish that those completely untrue statements were not constantly repeated. I have never said anything negative about our prospects because of Brexit—never, never. I have always been positive about Brexit.

[Anneliese Dodds]

I am sure that anybody listening to the debate will be delighted to look back at the article in the Financial Times. I hope that they will agree with the right hon. Gentlemen’s statement; some commentators have disagreed.

[John Redwood]

It does not mention Brexit. Brexit is not in the article.

--- Later in debate ---

[Anneliese Dodds]

I believe it was about the factors of uncertainty, which is a point that I will come back to, because they very much bear on the debate.

I welcome, however, the recognition that it is necessary to return some public spending to its previous levels. It is not correct to state that public spending was maintained in real terms. When we compare it with the size of the economy, there was an increase, but that is because our economy was not recovering at the rate that we would have expected, particularly in relation to other similar-sized economies—another point that I will come back to. Surely, however, we should not view public spending only in relation to economic growth, or as a way to promote economic growth, although that is an interesting move towards a Keynesian approach, which I cheekily welcome.

The choke-off in spending in many areas has had a number of unintended consequences that have been economically damaging and financially expensive. Paul Johnson from the Institute for Fiscal Studies has described the cuts in the number of police officers as

“Boom, bust, boom…Not a terribly efficient way to manage things”.

It is obvious that it is pretty expensive to take more police officers on to the books again after a number of them have been relieved of their duties.

Similarly, in many other areas, austerity has led to a significant increase in the demand and need for other forms of public services. The cuts to Sure Start and other early intervention and support services have been linked to the steady rise in the number of looked-after children. It is incredibly expensive to look after those children, as well as the fact that that has a terrible impact on their future lives in many cases. The lack of access to primary and other forms of healthcare has been linked to an increased demand for A&E services. The lack of action on air pollution has been linked to increased demand for asthma-related healthcare. Austerity has been self-defeating on its own terms. It is good that we have seen the light now, but it is rather late.

We also need to acknowledge that the Government have removed themselves from some areas of activity. A case has been taken up by criminal justice campaigners, who state that in the UK, rape has “effectively been decriminalised” because only 1.4% of reports of rape are prosecuted in the UK. That has been linked to a lack of resources; it has been stated that the state has a different scope in our country since austerity.

Arguably, all those cuts to public spending have had a significant impact on growth. I enjoyed the comments of the hon. Member for Derby North (Amanda Solloway) about growth. She is right that the economy has been growing every year, but surely that is a rather low bar. Traditionally, since the 1950s, the UK economy has grown on average by about 2.45% a year, but we have been well below that in recent years. If we look across the time from 2008, we have had the slowest recovery from an economic depression since the 1930s. Very recently, we have had more rapid growth than some of those comparable economies, but across the time, particularly in the first few years after the financial crisis when there was that change in Government, we had slower growth than the trend in comparable nations.

[Kevin Hollinrake]

The hon. Lady makes a fair point, but she must understand the starting position. The great financial crash was much more severe in the UK in relative terms than in any other developed country.

[Anneliese Dodds]

It was more severe, for reasons that I will come back to later that relate to some of the hon. Member’s work on the balance of investment in our economy and the impact that the slowdown had particularly on our property industry, which is such a significant part of our economy and which led to that particularly severe impact. We should not forget about that.

The very slow recovery has also been in evidence when it comes to living standards. Real wages are still not, on average, at the levels they were back in 2008. That is another significant difference between the UK and many comparable nations and one that we should not forget.

I welcome some of the discussion that we have had on productivity, which underlies some of the brakes on the growth rates that we would have liked to have seen in recent years. On the drivers of our productivity issues, other nations that are highly dependent on oil revenue, for example, have not necessarily seen the same kind of slowdown in productivity growth. Norway, for example, has much lower working hours than the UK and some people have linked issues of work-life balance to productivity as well—but that is just an aside.

It is critical that we look at the points about skills that the hon. Members for Strangford (Jim Shannon) and for Glenrothes (Peter Grant) rightly made. We have seen significant change to further education in recent years; major cuts have been made to colleges and sixth forms. I welcome the fact that the Government seem to be changing tack in that regard; it is absolutely critical that they do so, because when I talk to firms, the biggest issue they tend to mention is the lack of a skilled workforce, so we really need to focus on that.

We also need to talk about investment, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) rightly mentioned—both public and private investment. We have seen some negative developments in that regard, particularly in areas that are critical to future growth. Clean energy investments have plummeted since 2015. In 2018, annual clean energy investment was at its lowest level since 2008. There are a range of factors, but I would include the regulatory uncertainty in the sector. We have seen some big changes over time, and we need certainty.

We need to have an appropriate environment for small businesses and to encourage entrepreneurship; I agree with some of what the right hon. Member for Wokingham said about threshold effects. We need to learn from other countries. It is possible to calibrate the tax system far more closely to profits and to not have big cut-offs, such as those we have, for example, in relation to VAT. I would encourage Her Majesty’s Revenue and Customs to look at that as the tax collection authority—if it has the resource to do so, which is a significant issue.

On IR35, the elephant in the room is that our unemployment regulations are not calibrated with tax regulations; definitions are not the same in the two systems. I have not seen the kind of grasp of that issue that I had hoped for from the Government. IR35 and other measures are trying to plaster over some of the issues caused by the lack of consistency in definitions, but we need a longer term approach from Government.

The right hon. Member for Wokingham spoke in some detail about tax cuts. On corporation tax, some of the changes we have seen in the US have resulted from funds being moved out of tax havens—let us call a spade a spade here—but they have also resulted from much more aggressive pursuance of corporation tax equivalents by the US authorities. When it comes to the UK case—this seems to be a debate that we have just about every day in this House; I suspect that it is getting slightly boring for people reading Hansard—the evidence indicates, and commentators have said time and again, that the reduced rate of corporation tax has not led to increased growth in investment in the UK and that it has coincided with a reduction in the growth of investment and, above all, with a significant reduction in revenue, which has a knock-on impact on the possibility of boosting skills and so forth, and other drivers of productivity.

I think the UK population is very aware of that situation. The recent British Social Attitudes survey indicated that 60% of people want to see taxes boosted, if that could lead to more sustainable public finances and spending. Only 4% of people want to see them fall.

On the issue of free ports, which was mentioned by the hon. Member for Derby North, we need to tread with care and look at the research and the international evidence, much of which indicates that those kinds of structures can be very good at moving economic activity around but they are not always as good at promoting new economic activity—it tends to be the factor endowment in different areas that will promote development sustainably, the level of skills in the workforce and the level of investment in plant and so on. I very much enjoyed the hon. Member’s speech, particularly her focus on regional disparities; the hon. Member for Thirsk and Malton also concentrated on that. We need to go much further. It is a shame that we have not seen a commitment from the Government to shift economic activity that is under their control to other areas. Labour said during the election that we would like to see part of the Bank of England being moved up to Birmingham. I hope that we might see some more bold measures coming from the UK Government in that regard.

In relation to the claims that tax cuts will necessarily promote investment in economic activity, when it comes to the drivers of entrepreneurship among less well-off people, it is actually regulatory measures that can really make the difference—for example, minimum wages and rights at work.

Finally, on the comments by the right hon. Member for Wokingham about the drivers of risks in the world economy and the activities of the Bank, I was surprised that he did not make any mention of the impact of tariffs and so on in China and the US on the automotive industry. Most commentators would say that they played a significant part, and they would also talk about the fact that the wiggle room for policy activity by the Bank is of course reduced by the very low interest rates that we have. That is a significant issue for the UK, where we have that rather unbalanced situation with so much economic activity tied up in property.