The Government’s Productivity Plan

Callum McCaig Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Wright]

One of the weaknesses of government—this is based not on the colour of Administrations but on the nature and culture of Whitehall—is that it is silo-based. The lack of co-ordination is clear. In the modern age, with pressing economic challenges, we need greater monitoring, scrutiny, supervision and co-ordination across the Government.

It would be interesting to hear about the current status of the productivity plan because, as I said, it seems so 2015. It was intensely fashionable, but only for around 12 months. The new buzz phrase is “industrial strategy.” The strategy contains 12 pillars, as opposed to the 15 areas of the productivity plan, so we are seeing some efficiency. I welcome the Government’s willingness to embrace the phrase as a potentially positive thing, but it exemplifies one of the problems that we face. Successive Governments have tended to announce something, to provide a new initiative or to undertake a review. Policy flits like a butterfly from one thing to the next, with little if any meaningful impact on the ground on firms’ productivity or our constituents’ living standards, which is to the detriment of long-term economic competitiveness.

[Callum McCaig (Aberdeen South) (SNP)]

The hon. Gentleman is making a well-informed speech. He says that there is no influence on businesses’ productivity, but it actually has a damaging impact in certain cases. Take investment in renewables, for example. The industry ramps up and is able to support it, but then the pipeline that it is relying on is whipped away through Government policy changes.

[Mr Wright]

The hon. Gentleman is spot on. Constantly changing energy policy can undermine long-term investor confidence and the ability to ensure that foreign direct and other investment is attracted to this country. Businesses require as much certainty and clarity as possible. Of course, things change—“Events, dear boy, events”—but it is important to have a clear road map and to minimise policy tinkering as far as possible.

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[Richard Fuller (Bedford) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Newark (Robert Jenrick). I agreed with almost everything he said.

Just to remind everyone why we are here, let me say that this debate is about the supplementary estimate for the Department for Business, Energy and Industrial Strategy. This is the point at which the Government own up at the end of the year to where they are spending too much or too little against what they said they were going to spend, and set out whether they are going to invest more or less than they said they would. The variance can sometimes involve outstanding amounts of money. For this year, the Department is requesting further resources to be expended not exceeding £10.7 billion; that resources for capital purposes be reduced by £10.5 billion; and that the sum authorised for issue out of the Consolidated Fund be reduced by £13.8 billion. Those are large changes, but to spare the Minister’s blushes, let me say that he knows well that that is because of major structural changes in the Department over the year that have moved it from being an expenditure-heavy sector to one that will be ultimately much more focused on capital.

I challenge anyone to wade through document HC 946 and understand where the money is going—if they can do so, they are a better person than me. Given that the Minister is so sensible, may I ask him to challenge the Government to put a couple of things into these documents that reflect the current times? First, on variance at the end of year—when Departments are looking for more or less money—can they explicitly say, “Here is where we have saved money”? As several hon. Members have pointed out, people accept that we have to live within our means, so why can we not use this end-of-year variance accounting to say explicitly, “These are the areas where we have wished to save money,” because it would be a good opportunity to get the message out?

Secondly, on capital budgets, it would be nice in an end-of-year summary to get a sense of the return on capital to remind us how the Government judge the returns on the projects they are asking about through the variance—either when they are cutting money, as in this case, or if they are asking for more money. That is my overall point about estimates. I am just asking for a few things to improve the process for those of us who cannot easily understand what is going on from looking at six columns of numbers.

This debate also comes in the context of the productivity plan and its younger sibling, the document on the industrial strategy. Those two documents sit together. I very much welcome the initiative of my right hon. Friend the Member for Tatton (Mr Osborne) and the current Secretary of State for Communities and Local Government—he was then the Secretary of State for Business, Innovation and Skills—to pull together these various projects into a productivity plan. Yes, that plan was a bit of a mixed bag of initiatives that could easily have suffered from the criticism that my right hon. Friends were just pulling things together into a single document but, my goodness, at least we had a single document against which we could evaluate projects and with which we could hold the Government to account on this crucial issue of productivity.

Productivity is one of those shrouds that politicians like to grab hold of so that they can worry. We like worrying more than we like being happy, and when it comes to the national economy, it has to be either our balance of payments deficit or our poor productivity level that politicians wish to grab. They like to do that because they like to intervene in the economy and try to improve it. I have to admit that, in many instances, the Government play a positive and active role in the economy, but when they look to do too much, they have to know when to stop, so I make my third recommendation to my hon. Friend the Minister, which is that he learns this most important word to use in his deliberations—the word “no”. That means, “No, we’re not going to spend money on that”, “No, we’re not going to invest in that project”, “No, you haven’t done your analysis correctly”, or, “No, that rate of return is not correct.”

I make that recommendation because the Minister will be inundated with a variety of people who will attach their requests to the broad principles in the productivity plan, or the even broader principles in the Government’s industrial strategy, so that their ideas might gain favour. He will have to analyse those deeply and make some people very disappointed and unhappy by saying that their projects and initiatives are not worthy of taxpayer investment. That is extremely important because, as my hon. Friend the Member for Newark (Robert Jenrick) said, we have a responsibility to future generations. We cannot carry on living beyond our means. Before we spend what is essentially their money, we must have an acute sense that, if we are investing for the future, the rate of return will benefit them.

The productivity plan had another tremendous advantage, because it focused our attention not on how much we were spending, but on how quickly we were implementing the projects to which the Government were committed. One of the projects in the plan—it was subsequently raised by the National Infrastructure Commission—that was highly thought of was the Oxford to Cambridge corridor, to connect through Milton Keynes and Bedford, and onward to Cambridge. I am pleased that the Department for Transport has heard the message and is now coming forward with new ideas to make that happen sooner than was envisaged even at the time of the productivity plan.

I ask the Minister to pay particular attention to how procedures involving the interaction of Departments can be enhanced. I am talking about the time a proposal spends sitting in the inbox of one part of this complex system of organisations, Departments and agencies that have to approve something before it moves to the outbox and on to the next Department. This applies particularly to aspects of the road highway between Oxford and Cambridge, where there is an opportunity to move the timeframe forward. I would be very grateful for the opportunity to talk to the Minister or his counterparts in the Department for Transport about this.

[Callum McCaig]

The hon. Gentleman is making an interesting speech. When he said that his advice to the Minister was that he should say no to projects, I assume that he did not mean the ones that he was putting forward himself, which are of course very valuable.

[Richard Fuller]

I would hope that the Minister would use exactly the same assessment for that project as he would for any other. We have to build an economy that works for everyone. We have the tools at our disposal to do that, and it would be good to see the Scottish Government using some of the tools at their disposal to do something productive about their own economy, rather than complaining all the time and blaming others, as the hon. Gentleman has just done.

Let me respond to the challenge from the hon. Gentleman. If the Minister believes, as seems to be the case on the basis of what the National Infrastructure Commission has said, that the corridor between Oxford and Cambridge is important, he has a responsibility under the principles of the productivity plan to implement the relevant initiatives, plans and investments as quickly and effectively as possible, and to set a new benchmark for the speed of implementation.

Let me briefly touch on two further aspects of the plan. First, the Government response to the Select Committee report talks about the commitment to “funding innovation”—yes, yes, yes. “Yes” is the word—I repeated it three times—that the Minister should be saying about innovation. When Governments seek to intervene through something as cumbersome as an industrial strategy, there is a risk that they do not listen to the voices of the entrepreneurs—those who are prepared to take risks or those who want to disrupt. As we leave the European Union, there will be a number of additional things that the Government can do on innovative financing, such as peer-to-peer lending, and especially to reduce some of the restrictions on the enterprise or seed enterprise investment schemes. That would get people investing in our early-stage businesses much more effectively.

Similarly, we have heard a lot of good things from the Government about their commitment to improving management and leadership. It is easy for us to take that for granted. It is one of the soft things that arise when we think about productivity, but it is essential that the management and the leadership of our businesses have the resources, skills and capabilities to be expected from a global leader in business and a country that wants to trade freely and openly with the rest of the world.

Finally, in both the productivity plan and the industrial strategy, my personal feeling is that not enough reference is made to the future way in which employment and work will operate. We heard from the Chair of the Select Committee about how a lack of security in the labour market is a concern to not just the people directly affected, but all of us who want a country and an economy that work for all. We heard from my hon. Friend the Member for Warwick and Leamington (Chris White) about the potential of the fourth industrial revolution, but with that great potential to improve our productivity will come quite dramatic changes in the skills and work required from people who are currently employed in many segments of our economy.

In those sectors and industries, what will be the Government’s answer to the impact of achieving higher productivity? This is the other part of the point about what happened in the past that we discussed earlier. More people are employed, and we should not throw that away in pursuit of higher productivity because we should be able to accomplish both things. Similarly, in the future, we should not look only for increased productivity if it means that what for many people is part of their being—going to work, working hard and having purpose—will be dramatically changed by measures that are taken to invest in and take up the challenges of the fourth industrial revolution.

If the Government are silent about that in their productivity plan over the next few years, they will fail the British people. From what we hear from the Prime Minister, she will not do that, but we have to get the detail of what the plan will mean as we look beyond today’s estimates debate.

[Callum McCaig (Aberdeen South) (SNP)]

Let me begin by echoing what was said by the hon. Member for Hartlepool (Mr Wright). This estimates day debate is slightly archaic, in that, with the honourable exception of the hon. Member for Bedford (Richard Fuller), we are not actually discussing the estimates. Instead, we are discussing a report produced in February last year by the Business, Innovation and Skills Committee—a very valuable report—on a Government paper published in 2015. The hon. Member for Hartlepool said that that paper was rapidly becoming obsolete. That casts a favourable light on this process, which, I would say, became obsolete some time ago.

Rather than our discussing how the Government spend all their money, the Committee—and I mean no disrespect by this—has, essentially, presented its homework to the Chamber. That process has been entirely valid. It has been extremely instructive for someone who is not a member of the Committee to learn what it has done, and I commend it for its work. It would be interesting to know what a report from a Select Committee that did not contain a Government majority would say, because this report pulls no punches. I commend Conservative Members who engaged constructively with the process to ensure that the Select Committee did its job of holding the Government to account.

Let me now deal with the matter that should, or perhaps should not, be at hand: the report on productivity. I do not wish to repeat what has been said by many other Members at any great length, but there is clearly an issue. The general growth trend was 2% per annum before the financial crisis, and it is barely above that now, which the Office for National Statistics has described as unprecedented in the post-war period. As we have heard, ours is the second worst figure in the G7. It has been said that such comparisons may not give us all the detail, and that is certainly true, but there are some stark comparisons to be made in this context.

One of the most striking parts of the report, which was quoted by the hon. Member for Edinburgh West (Michelle Thomson) but which is worth repeating, concerns post-study work visas. It states:

“We recommend that the Government does not allow migration pressures to influence student or post-study visa decisions. Specifically, it should relax the post-study visa restrictions. It is illogical to educate foreign students to one of the highest standards in the world only for them to leave before they have had an opportunity to contribute to the UK economy.”

That, in a nutshell, is the critique of the Government’s immigration policy, and I do not think that it could be put any better. During a period of stagnating productivity growth, we have seen economic growth. Perhaps the two should not go together, but the reason we have no productivity growth but do have GDP growth is largely due to immigration. Following the ending of free movement of people and the pulling up of the drawbridge to immigration, we shall have to get serious about productivity, because if we are not going to secure growth from immigration, I shall be concerned about how we are going to secure it.

My hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) talked about tier 1 visas. I think that, in raising those two issues, my hon. Friends have nailed some of the imponderable follies surrounding an immigration system that does not work for our economy, and I fear that the situation will only get worse.

Of course, immigration is only part of the debate about our economy; productivity is also an important part of that debate. So how do we go about boosting productivity? I think there is a general consensus—although there are varying degrees of enthusiasm about the individual elements—that we need to invest in our infrastructure: our roads, railways, bridges and airports, and, crucially, our digital infrastructure. We need to invest in skills and training, we need pay growth, we need inclusivity in the workforce, and we need more internationalisation. The hon. Member for Bedford suggested that the SNP should get on with doing some of those things rather than criticising what others did. I can tell him that we have done them all, and that, as a result, Scottish productivity rose from 94.5% of the United Kingdom level at the time of the financial crisis in 2007 to 99.9% in 2015. In 2015, growth in Scotland was 3.5%, compared with 0.9% for the UK as a whole. The action we have taken has had a demonstrable benefit. I urge the Minister and his colleagues to look at what we have done in Scotland.

The right hon. Member for Wokingham (John Redwood) mentioned the oil and gas sector. Clearly, there are issues in the sector. The Scottish figures do not include figures for the offshore sector, but they do include many of the figures for the onshore activity in the oil and gas sector. That sector has a success story to tell. In the face of plummeting commodity prices, it has been able to bring down its costs dramatically. It has increased efficiency dramatically and put its business on a firm footing. It is ready for growth. My hon. Friend the Member for Aberdeen North (Kirsty Blackman) asked the Chancellor about the Budget at Treasury questions earlier. The sector is ready for growth and, with support from the Government, who hold the key tools for boosting that sector, it will be able to grow further.

My hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) mentioned avoiding working in a silo. The oil and gas sector has learned to look at other industries to see how it can boost its productivity. About a fortnight ago, I was at the opening of the Oil and Gas Technology Centre in Aberdeen, a collaboration through the city deal for Aberdeen between the Scottish and UK Governments, both universities and both local authorities in the region. The guest speaker was the chief executive of the Advanced Propulsion Centre in Coventry. The oil and gas industry is looking to learn how others have boosted their productivity in the face of difficult economic pressure.

As I say, the Scottish Government have invested in these things. One of the key things that has led to the boost in productivity in Scotland has been the introduction of the Scottish business pledge by the Scottish Government —some 330 businesses across all sectors have signed up to that. Its key component is the agreement to pay the living wage—that is the real living wage, as opposed to the national living wage. It has also agreed to sign up to two of the other options, which include no zero hours contracts, improved workforce engagement, investment in youth, having a balanced workforce, investment in innovation, internationalisation, connecting with the community and prompt payment of suppliers. Those moves are making a manifest difference.

May I draw attention to the living wage aspect? Earlier, the right hon. Member for East Yorkshire (Sir Greg Knight), who is no longer in his place, asked the Chairman of the Select Committee about workers and caravan parks and talked about the economy perhaps requiring low-skilled workers on low pay. I disagree with that premise. The tourism sector is vital to the UK, and is of specific importance to Scotland. Having well trained people who can welcome folk and explain things and who have built up experience is a benefit. When companies have higher wages—when they pay the minimum wage—they experience lower worker turnover. Those companies then have to spend less on training and on recruitment and they get a better outcome, so let us not diminish jobs that may seem to be unskilled. If we can invest in those, treat those people properly, with the respect they are due, and pay people a decent wage, they will have greater pride in their job and produce more.

I mentioned in my intervention on the Chairman of the Select Committee that there have been damaging changes in policy. I, too, welcome the production of the Government’s industrial strategy. I hope that they will learn the lessons of previous mistakes. The constant moving of the goalposts was particularly acute in the energy sector, where expertise had been built up over a number of years, but the productivity increases were pulled away because of Government changes to the investment climate—onshore wind and solar PV have faced a headwind. The decision on carbon capture and storage was taken with zero consultation. That is not good for the economy or for productivity growth.

We also need to focus on Brexit. If we are serious about boosting productivity, let us ask ourselves how the productivity of our exporters is going to be increased by having to fill out forms because we have come out of the customs union. They will need to go through complex processes to export the same goods; more work for the same product. That will not boost productivity. How will the productivity of our university sector increase when students, academics and funding that had previously come from the European Union cease to arrive as a result of a hard Brexit? Our food and drink sector relies on the European Union for funding—through the common agricultural policy, for example. It exports a huge amount to the single market, and 8,000 nationals work in it. How is the productivity of that sector going to be boosted by Brexit? It is not, and we have to face that.

The Scottish Government, and my hon. Friends and I, have been clear about how we wish to proceed from a Scottish point of view. We have sought compromise over Brexit. We have sought to ensure that the UK as a whole stays in the single market and the customs union because we believe that that is the best thing for our economy and our productivity, for the reasons I have just outlined. Before we get too far down that road, however, I urge the Minister to look at the Scottish Government’s policy paper, if he has not already done so, and to react to it and respectfully agree that we will pursue that aim. To boost productivity, we need to invest in all the areas that I have outlined, but above all, we need to avoid the hard Brexit that is facing us. I plead with the Minister and his Government to listen carefully and to protect Scotland’s place in Europe.