Public Services: Economic and Climatic Challenges

Baroness Worthington Excerpts

Thursday 23rd January 2014 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I also congratulate my noble friend Lord Rooker on enabling such a broad debate to take place on this most interesting of topics. I also extend my thanks to the right reverend Prelate the Bishop of Ripon and Leeds for his contribution. I am sad that it is his final contribution, but I am sure that everyone will congratulate him on making such an important contribution to this debate. As was alluded to by the noble Viscount, Lord Ridley, today I will adopt a fairly upbeat approach to this topic. There is much that the UK can feel very happy and proud about in relation to its resilience in adapting to the changes that are coming.

We have a predominantly knowledge and service-based economy. This means that we are at the cutting edge of new ideas and can adapt quickly to changing circumstances. As a number of noble Lords have mentioned, the pace of that change appears to be quickening, and that can make our ability to plan incredibly difficult. However, given some of the assets that we have and the nature of our economy, I think that we are well placed to be able to do that. It is a diverse economy.

Much concern is expressed in the media and elsewhere about our potential overreliance on financial services and the financial sector. However, official statistics show that the contribution to the economy of that sector, in terms of its gross value added, is in the range of 5% to 10%. It employs only 4% of the workforce and contributes about 6% to 7% of tax receipts. I am not saying that that is not a big contribution—it is—but clearly upwards of 90% of our economic output is generated by a diverse range of other sectors. The service sector, as I mentioned, dominates, with professional, scientific and technical services accounting for the largest part—almost 13%—of the non-financial sector GVA. Other important sectors include entertainment and media, which make a strong and growing contribution to the economy, as do the green technologies and services. These sectors have been able to show growth when other sectors of the economy have been in decline.

One fundamental reason for this resilience and strength in our economy is our academic record and our academic institutions. Given the size of our country, it is quite astounding that the UK is home to four of the top 20 universities in the world and that 15 are in the top 100. This gives us a fantastic foundation on which to build, educating not just our own young people but people around the world. We are able to disseminate into the wider world the principles and ideas that we hold dear using our academic institutions, which themselves are now opening campuses in other parts of the world. Based on that sound academic and research base, we also now have a globally competitive lead in key sectors such as biopharmaceuticals, aerospace and the digital economy.

We also have—the noble Viscount, Lord Ridley, spoke very eloquently about this—a very clear history of innovation. This is an essential component of a modern economy. We do not need to talk about the Industrial Revolution but I mention briefly a recent innovation in the invention of graphene, which is being dubbed the world’s most important new material. It was discovered by two Russian scientists at Manchester University in 2004. The excitement around this material is very great. However, the question remains: will the UK be able to go from research and the fundamental principles of discovery into commercialisation and help to build a business around it? It is clear that graphene can be put to use in a number of different ways—from condoms to super-efficient solar power cells. Therefore, there is much to be optimistic about.

However, there are of course challenges—not least challenges to the public purse, on which my noble friend Lord Rooker cleverly instigated a debate within the topic of his speech. Perhaps primary among those are the demographic changes that we will experience. Average life expectancy is growing. We have reduced infant mortality, and medical advances and higher living standards now mean that we are living longer, as the noble Lord, Lord Kirkwood, alluded to. These are good things that we should celebrate. They are a mark of how much we have improved our lot in a relatively short period. We have seen diseases eradicated, and a number of medical interventions and innovations have helped to prolong life.

However, a top-heavy demographic will create pressures on public spending, increase our pension liability and potentially lead to higher care and health costs, with the added problem of fewer working-age people paying into the pot in taxes. Of course, immigration can help to address this, and a number of noble Lords have alluded to the fact that interconnectedness can help to strengthen us and make us more resilient. Far from bowing to the scepticism and scaremongering about immigration, we must celebrate and praise the resilience that it has given our economy.

Healthcare is going to be a crucial issue. I think we will find that health and social care are incredibly difficult topics. Of course, one method of helping to alleviate the burden on the public purse is to spend more on prevention. More needs to be done in looking at some of the commonplace diseases that perhaps do not grab the headlines as much, such as diabetes, heart disease and obesity. People with these chronic illnesses and diseases can be helped through better education and early intervention. A refocusing on prevention in our national healthcare system would be money well spent.

I should also like to mention the need to clean our air. It seems to me crazy that in the 21st century we still have a problem with air quality. Poor air quality contributes to chronic diseases such as asthma and other respiratory diseases, and it should be a priority for any modern economy to eradicate it. The technology now exists to make our streets and our air far cleaner. There is no excuse for some parts of London currently having triple the legal limits of NOx pollution.

The other great challenge for government—I pay tribute to my noble friend Lord Harris for describing it—is the need to keep a balance in our economy and not to allow inequality. We cannot have an innovation and growth economy that represents only the few and not the many. The whole of our population must be brought forward together. Inequality is a real problem but the answer, as my noble friend Lord Rooker said, is not water cannons. There must be a much more sophisticated response than that. We must address the fact that poverty is now found among those in work as well as those out of work. I believe that the statistics show that poverty levels are now higher among those in employment than those not in employment.

Looking slightly more closely at how we raise finance for public spending, there are a few trends which I think this Government and all Governments need to think about. One, in particular, is that we rely quite heavily on income based on fossil fuel taxation. Fuel levies make up 5% of the revenue but the consumption of fuels is falling as vehicles become more efficient, and North Sea revenues are also falling as production declines. The question is: what will replace that as a source of income? The noble Viscount, Lord Ridley, mentioned shale gas, the impact that it has had in the US and how it has created a challenge for Europe as a whole. I do not dispute that but it is not yet clear that shale gas can deliver the same kind of revolution here as the US has experienced or on what scale. There is also a great need to ensure that we have robust regulation to protect water resources and drinking water when we eventually exploit it.

I would prefer a balanced approach: shale gas if it can be extracted safely and affordably and carbon capture and storage, a technology which could add value to and reinvestment in the North Sea infrastructure, extending the economic lifetime of that investment and enabling us to return to using our own coal-based assets. It would definitely help energy resilience if a higher proportion of our energy came from home production rather than imported fuels. CCS is underexploited and given too low a priority by this Government. I wish we could see as much enthusiasm about CCS as we do about shale gas from our Ministers and leaders. Canada is currently leading the world on this. We had an opportunity to be world leaders and we must catch up.

I am feeling in an optimistic mood: we are currently experiencing an economic recovery and that is certainly welcome. However, it has to be a sustainable recovery: one based merely on increased consumption or housing price rises will not be sustainable in the long run and we cannot risk a repeat of the boom-and-bust cycle that led to this recession in the first place.

The answer lies in innovation at every level. As noble Lords have alluded to, there are now technologies which are revolutionising everything. From education to transport to you name it, a coming technology will change how we do things currently. For example, smart homes: there are now devices that you can put on your mobile phone which communicate with your house so that when you are approaching your home it tells the central heating to switch on and get it nice and warm ready for your arrival. You do not need to do anything: it is simply based on reading where you are using your mobile phone. With LED lighting, huge efficiencies over the current lighting systems are possible. Every local authority in the country should be investing in it, not only to reduce their electricity bills but to improve the quality of services that they offer. Smart LED lighting can adjust to the levels needed automatically and can spread the provision of lighting to help increase security. A great deal of new technology is coming through which will help to improve our lives.

A number of noble Lords have alluded to the fact that we must have a long-term plan if we are going to do this efficiently and well. We cannot allow the short-term thinking which is rife in the private sector, governed as it is by the quarterly cycle of reporting and the desire to meet shareholder demands: we need a longer-term view.

We must also have a longer-term view than the election cycle, where there is always a temptation to worry about the immediate priority of winning an election at the expense of longer-term thinking. The noble Lord, Lord Kirkwood, pointed out that in the desire to cut spending in ways that will not be noticed, investment in the future and in capital is often one of the first things to go. That is regrettable.

That brings me on to perhaps the most negative part of my contribution today—that is, the Government’s plans on flooding defence. It is clear that there has been a little confusion, to be generous, about how much money is going in. It is clear that less government money is going in than has previously been the case and it appears that government plans for the future are a little short-sighted. I am informed that the Government’s Flood Re proposals do not include the likely increased need for flood defence as a result of climate change. We can debate climate change and where we are at the moment, but it is clear that reduced ice in the Arctic means more evaporation, more precipitation and sea-level rise. Many factors will contribute to flooding for which we need to plan; we cannot simply wish them away.

I am concerned about the Flood Re proposals. I have received information today that there are large exemptions to the kinds of property that can have access to this insurance. A group of organisations, including the British Property Federation and the Council of Mortgage Lenders, have said that millions of homes could be left without access to insurance unless that policy is changed.

I am told that I have one minute left and I will end, as I said, on a positive note. The pace of change is quite extraordinary. I am sure that I am not the first person to have said that and that future generations will say it too. It is a matter of perception. With the benefit of hindsight, it always seems as if things used to be more clear and certain. We must resist the temptation to feel that there are many new risks or risks that are unique to our time. It is human nature to perceive, be aware of and try to plan for risk. It is what has made us a successful species. I shall end with a quote from Sir Winston Churchill:

“The future is unknowable, but the past should give us hope”.

That is why I am feeling cheerful today. The UK has great assets and a great ability to respond to these challenges, and I am sure that it will do so.

--- Later in debate ---

[Lord Wallace of Saltaire]

I merely said that it is a risk. It is a risk that we have seen over the past 20 or 30 years. On the whole, we have managed the diversity of British society extremely well, but it is not something—I say this again from my experience in West Yorkshire—that can be entirely ignored. It is one that we all have to be aware of. My noble friend Lady Eaton, a former leader of Bradford council, is actively engaged in Near Neighbours, which works across West Yorkshire in bringing those different communities together. We have to work on these things.

Animal disease was mentioned. Defra and the veterinary agency are dealing with scanning surveillance capability on the threat of animal disease. I assure the noble Viscount, Lord Ridley, that a large number of scientists in universities, in government laboratories and in the private sector are working together on this.

The noble Baroness, Lady Worthington, and others spoke about spending on flood defences. The noble Baroness was absolutely right: spending overall is going up, which is partly because, under partnership arrangements, private providers are increasing their contribution as the Government have squeezed the rate of their contribution. Those who say that there has been a reduction and those who say that there has been an increase are therefore both right depending on whose figures you take. We are all conscious that flood defences are a highly emotive issue. I would contradict those noble Lords who suggested that the Government are not thinking about the future of peatlands and tree-planting in the uplands. We had a Question on peatlands from my noble friend Lord Greaves the other day. These are matters where the Government, local authorities and water companies are working together.

I am conscious that time is running out. I have mentioned the flood mitigation measures which are already under way; clearly, more needs to be done. I was looking up what an earth bund was this morning— perhaps the noble Lord, Lord Rooker, already knows what that is—but experiments are under way to prevent heavy rainwater on saturated land going immediately downstream by holding it in artificially created water meadows. The Government are experimenting as far as they can in all this.

[Baroness Worthington]

Would the Minister care to comment on my questions about the Flood Re provisions and the number of households which it is feared may not be able to apply for flood insurance under that scheme?

[Lord Wallace of Saltaire]

I have some notes on this which I have not had time fully to absorb. Perhaps I may write to the noble Baroness. I am conscious that the Government are engaged in active discussions on that. I know that it is matter of great concern to householders who live on flood plains. I think that about a quarter of the population of Wandsworth lives in houses built on the Thames flood plain. That is part of the reason why we need the Thames barrier. Their houses were built 100 years ago or more. This is not a new problem.

Many other issues were raised in this debate. They included the need for innovation; the advantages of greater globalisation—referred to by the noble Viscount, Lord Ridley—and the risks of globalisation in terms of undue energy dependence or undue food dependence. I always think that I am contributing a great deal to Britain’s energy security by the amount of food that we produce on our allotment. We have just finished our last courgettes from last summer and there are still apples in the basement, so we are doing our small bit for British energy security.

Perhaps I may end by saying that government can never anticipate all risks. When the great fire at Buncefield went up some years ago, my wife reminded me of a conversation that we had had with the head of the international energy programme at Chatham House when we both worked there in the mid-1980s. He had said, “I’m not terribly worried about civil nuclear problems; what I’m really worried about is what would happen if one of those oil distribution depots went up”. We had not a clue what he meant by it at the time, and probably very few people even in government were thinking about the potential for that. That was the largest fire in Europe since the Second World War, and a major national emergency that I suspect that we had not entirely prepared for. One of the problems that government faces is how much you insure against risks which would be severe but which are not terribly likely, and how far you insure against smaller risks which are more likely but less severe.

I thank the noble Lord, Lord Rooker, for his, as always, wonderful and extremely wide-ranging speech. I look forward to many more interventions from him in the future.