Economic Growth and Employment

Bill Esterson Excerpts

Wednesday 23rd November 2011 Commons Chamber

[Mr Umunna]

I am glad that my right hon. Friend brings up the Thatcher era, because a well known noble Lord was asked on Sunday whether such initiatives, which seek to make it easier to fire as opposed to hire people, act as a stimulus to job creation. He told the BBC what he thought of that, saying:

“I’ve been responsible for one of those deregulation initiatives for many years and I would be quite frank in telling you that I don’t think we achieved much.”

He went on to say that

“you want to be very careful in political terms that you don’t get the reputation that all you’re trying to do is make life rougher and tougher for large numbers of people.”

Those are the words of the noble Lord Heseltine, and, if a Conservative-led Government are unable to persuade him to buy into the concept, why should the rest of us do so?

[Bill Esterson (Sefton Central) (Lab)]

My hon. Friend makes an excellent point about what Lord Heseltine said, and the evidence is that, when we create uncertainty for workers by attacking their rights, we find that their behaviour changes in relation to the economy. They stop spending money in the economy, and that undermines the opportunity for growth and the support for businesses, so any Government Member who thinks that cutting workers’ rights is a way to grow the economy is sadly mistaken.

[Mr Umunna]

My hon. Friend is right, and when the Chartered Institute of Personnel and Development looked at the economic effects of the proposal to increase the service requirement from one to two years, the chief economist, Dr John Philpott, said that

“any positive effect on hiring is likely to be offset by a corresponding increase in the rate of dismissals. Increasing the qualifying period for obtaining unfair dismissal rights thus runs the risk of reinforcing a hire and fire culture in UK workplaces. Although the policy change will undoubtedly be welcomed by the de-regulation lobby, it isn’t the way to boost growth and jobs.”

--- Later in debate ---

[Vince Cable]

Obviously, I do not know the particular position in Deptford, but I am very happy to take up the specifics if that helps.

The particular question that the hon. Gentleman started with was fair: why did the economic slow-down occur? He quoted my colleague in the upper House and others of varying views about why we have lower growth than was predicted by independent forecasters 18 months ago.

[Bill Esterson]

Will the Secretary of State give way?

[Vince Cable]

Let me try to deal with this issue. We would all probably accept—I hope that the hon. Member for Streatham would accept—that the Governor of the Bank of England is an independent, non-partisan, non-political analyst of what has occurred. Let me read to him the Governor’s account given a week ago on why the slow-down in growth has occurred. He said:

“This reflects the impact on the United Kingdom of the deterioration in prospects internationally, working through weaker net trade, higher credit spreads and the likelihood”

of elevated uncertainty. He goes on to describe the impact of world energy and commodity prices, and the 35% increase in the sterling price of oil, none of which was mentioned in the hon. Gentleman’s speech.

[Bill Esterson]

Will the Secretary of State give way?

[Vince Cable]

Let me just finish this argument. Some of us have argued for a long time that the underlying problem is that, since the beginning of the crisis, the British economy has suffered—I use my own metaphor— the economic equivalent of a heart attack. There is a profound problem, and what lies behind it is the fact that, more than any other developed country, we have quite extraordinary levels of debt.

There are different kinds of debt. Household debt is 160% of gross domestic product and, after the boom that took place under the previous Government, it is higher than in other developed countries. Banks’ balance sheets are more than 400% of GDP, after they were allowed to run out of control. Government debt is 180% and rising as a result of the deficit financing we had to undertake. If we put those things together, as McKinsey has done, they show that the position we inherited is one where total debt in the UK is approaching 500% of our GDP. The only other country with a problem of that scale is Japan. That is the inheritance we are now seeking to manage.

--- Later in debate ---

[Stephen Metcalfe]

I would indeed agree with that view. I believe that all Government Members, and I suspect some Opposition Members too, would agree that the vast majority of businesses, especially small and medium-sized enterprises, know that their most valuable asset is their staff. Employers need staff and staff need employers. The problem has been that in the current economic climate firms are cautious about taking on additional risk, and that often means being cautious about taking on additional staff. I believe that making it easier for companies to manage their staff levels makes it easier for them to take on staff. Knowing that the risks of employment have been reduced might well unlock the employment door.

[Bill Esterson]

Does the hon. Gentleman agree that one of the worst things for an employer, particularly a small business, is having staff who are unsettled, looking for other jobs and fearful for their own future, which is actually bad both for the business and the economy, because those people spend less money? The measures proposed by the Government will simply contribute further to that, and make the situation worse.

[Stephen Metcalfe]

I agree that having an unsettled work force is not healthy, which is why it falls to business men to reassure their staff. However, it is possible to unsettle a business by insisting that it employ staff when there is not necessarily a role for them and it might be difficult to afford them.

--- Later in debate ---

[Roberta Blackman-Woods (City of Durham) (Lab)]

The audacity and complacency of Government Members is truly extraordinary, given the present state of the economy. The headline figures for UK economic growth are deeply worrying. Growth is flatlining, and it is becoming increasingly obvious to anyone with any sense that the Government’s decision to cut too far and too fast is choking it off. We also know that growth began to stall before the effect of the eurozone crisis kicked in, and that even now the full impact of that crisis has not yet been felt.

[Bill Esterson]

The figures show that consumer and business confidence began to decline when the coalition Government were formed, at the time when the Prime Minister started talking about Britain being bankrupt. Was not the Prime Minister very unwise to make such comments?

[Roberta Blackman-Woods]

Indeed. We also know that as a consequence of Government policies—and according to independent forecasts—it is very likely that borrowing will have to increase. That is having devastating consequences. Unemployment is rising, particularly among the young, although women are also being disproportionately affected.

The headline figures should concern us, but what should also trouble us greatly is the uneven way in which the consequences of the Government’s disastrous economic policies are being felt across the country. Once again the north-east seems to be bearing the brunt of the Conservatives’ economic policies, but this time—and I hope that this point is not lost on the voters of the north-east—they have the collusion of the Liberal Democrats.

The current unemployment rate is 11.6% in the north-east, but only 6.3% in the south-east. Similarly, the claimant count is highest in the north-east and lowest in the south-east. As I have said, the situation is even worse for young people. In the north-east, unemployment among young people increased by 106.3% between January and October 2011, prompting real fears that the region would return to the economic dark times of the 1980s. Yet this dire situation is so unnecessary.

Contrary to what the Secretary of State said—it is unfortunate that he is not present, because I wanted him to hear this—in the north-east gross value added actually grew between 1989 and 2008, as did GVA per head of population. That was primarily because money channelled through the regional development agency One North East levered in £9 for every pound spent—much more than the national average—and skills levels also improved year on year.

--- Later in debate ---

[Guto Bebb]

If what we are seeing in Wales is an example of Labour economic thinking, I am very pleased that it is in opposition in the rest of the United Kingdom. The truth of the matter is that the Labour party in Wales has shown across the generations a failure to understand the importance of supporting enterprise.

[Bill Esterson]

Will the hon. Gentleman give way?

[Guto Bebb]

Not at the moment, as I wish to finish the point I am making. The valley communities in Wales have suffered extremely badly not just for 10 or 15 years, but over a period of 30, 40 and 50 years, and it is fair to point out that throughout that entire time they have, unfortunately, been electing Labour councillors, Labour MPs and Labour Assembly Members. There was a fantastic business support programme in the south Wales valleys called the heads of the valleys innovation programme. It was such a good programme that in 2010 it won the award for the most successful enterprise support programme in the entire United Kingdom. What did the Labour Administration in Cardiff do? They cut its funding, and that was the end of an organisation that had supported hundreds of businesses and protected more than 4,000 jobs in some of the most deprived communities in the United Kingdom. It was cut because it was supporting private enterprise, which the Labour party does not understand or embrace.

Despite the fact that the motion, in general, is incoherent, I want to follow up a few points. In my constituency, we are extremely dependent on tourism, which is a major driver of growth in north Wales. It is imperative, in my view, that that sector is supported. I should point out that under pressure the Welsh Assembly has finally acknowledged that the sector deserves support, but initially the Welsh Assembly Government stated that tourism deserved no support whatsoever.

My concern about tourism is that as a coalition Government we stress the need to create a competitive tax regime for our businesses but in Europe other countries are significantly reducing VAT on tourism. It is important that we have a level playing field and I ask the Secretary of State to consider discussing the issue with the Treasury to ensure that tourism in Wales can benefit from similar VAT rates to those in other parts of Europe, including Ireland and France. There are reports to which I have access that state that the multiplier effect of making such cuts would be financially beneficial to the Treasury.

The other issue that is imperative for growth in the economy is support for small businesses. It is all very well to say that there will be a cut in the corporation tax rate, but most of the new start-up businesses that are creating real employment in my constituency will be sole traders and partnerships. Obviously, they will benefit from the increase in personal allowances, but a key issue that creates a problem for them is the VAT registration threshold. Nobody denies that the UK has a very high VAT registration threshold at £73,000, but that is not my complaint. As businesses grow and start to reach the threshold, they find themselves on a cliff edge. If they go over that level, they have to register for VAT and lose a significant part of their profitability. We need to reconsider the VAT threshold to support small businesses.

I understand that we are running out of time in the debate, so I shall leave that issue with the Secretary of State. To support small businesses in my constituency, we need to consider the VAT threshold and how it interacts with profitability.