The Government’s Productivity Plan

Debate between George Kerevan and Robert Jenrick

Tuesday 28th February 2017 Commons Chamber

[Robert Jenrick]

I apologise if I chose my words poorly, but the point that I was trying to make is that we need to exercise great caution, because two things have had an effect. The first is that high levels of immigration have meant that wages have been supressed, but as we leave the European Union we also need to ensure that people continue to do those jobs, whether they be in the care sector or, indeed, in the food production industry in my constituency. There is a challenge ahead for the Government not only to maintain employment levels, but to ensure that there is a better-paid workforce.

Secondly, as has already been said, a major contributor to our loss of, or stagnating, productivity in recent years has been the decline in the financial services sector since the financial crash of 2008. That has happened not just in London, but across the country, including Edinburgh in Scotland, Manchester and my own city of Nottingham, where the related company Experian is based. There are fewer jobs and less productivity. Nobody is a friend of investment bankers, but they are highly productive members of the economy and we need to be careful about how we accommodate the financial services sector post-Brexit. Personally, I am fairly optimistic about the future, given that those investment bankers and lawyers to whom I have spoken will not follow the entreaties of Mr Macron and move to France, with its sclerotic, socialist economy, any time soon.

We need to be careful, however, about how we proceed in tackling the productivity gap. I am particularly cautious about spending more money and getting the country into further debt. The national debt, of course, is £1.8 trillion and it is increasing at a rate of £5,000 per second. Levels of austerity have been grossly overstated: public spending has fallen by only 5% or 6% in real terms since 2010. Although it has fallen as a percentage of GDP, it remains a major problem, and I am particularly concerned that fewer and fewer right hon. and hon. Members even mention the debt and the deficit as part of our national dialogue. That needs to change, because the greatest threat to our economy and productivity is the debt we are leaving to future generations.

[George Kerevan]

I presume that the hon. Gentleman is aware that when Harold Macmillan was Chancellor of the Exchequer, the national debt was double what it is now. Even though it has doubled in the past 10 years, it was double the current figure as a proportion of GDP, and the economy was growing even faster and productivity was even higher.

[Robert Jenrick]

The problem with higher levels of debt lies not just in passing it on to future generations, but in the consequences of that for them. It will mean higher taxes, a less competitive economy and poorer productivity for generations to come. Just because many of our competitors around the world, including the United States under President Trump, have chosen to go down that path, that does not mean that we should follow them. I for one want a Government who in the years to come tackle the debt and deficit as aggressively as they have done in the past.

I am cautious of trying to tackle the productivity gap by spending money on high-expenditure infrastructure projects that have over-optimistic claims—a result, I am afraid, of politicians being both their promoter and their scrutineer. I suspect that HS2 falls into that category.

I welcome the National Infrastructure Commission. I hope that it has teeth and that it will provide balance and ensure that we start investing in those infrastructure projects that actually improve productivity and take long-term decisions for the future of the country. Given the current scale of the national debt, borrowing for rushed, so-called shovel-ready projects will have a limited multiplier effect and will only add to the debt burden, thereby necessitating future tax increases and a less competitive economy in the years to come.

I am in favour of us investing in those infrastructure projects that promote long-term growth which do not necessarily cost the earth and have the highest productivity potential. I am also interested in supply-side reforms that cost either little or nothing at all, such as deregulation and tax simplification, or that are likely easily to pay for themselves, including the creation of a lower-tax economy that will benefit us for years to come. Let me take each of those points in turn.

In relation to creating a longer-term, higher-growth investment plan that will tackle low levels of productivity, I have some sympathy with some of the areas that have already been discussed. The congestion on our roads is a major issue. As hon. Members have mentioned, our roads are among the most congested of any country in the G7. This does not necessarily require the most expensive road investment strategies, but it does require investment in bypasses, junctions and mending potholes. My own town of Newark is one of the most congested towns in the midlands, and freeing it up would give a major boost to the economic prospects of the whole of the east midlands.

We should take some long-term decisions even though they are expensive, such as investing in Heathrow. No Government who actually believe in tackling the productivity gap or in putting us in the right position to be a global trading nation can afford to let such a decision be pushed further into the future. Less sexy decisions to do with long-term infrastructure are also important. We heard my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) talk about trying to sort out the problems of freight on our road and rail. I am sure that my friend Sir John Peace, the head of the Government’s midlands engine, will make that a priority in his forthcoming report.

Lastly, it is very important to take seriously the need to reduce energy costs for manufacturing and other parts of our economy. It is of course important to produce a sustainable energy economy and ecosystem, but we are pricing out many of our most important manufacturing businesses with expensive energy projects. I am particularly concerned about some of the Government’s decisions in recent years that have produced extremely expensive projects, for which we will have to pay for years to come. It was imprudent of us to have closed some of our power stations, such as Cottam in my constituency, which were operating perfectly well and helping to keep energy costs down for consumers and businesses.

On supply-side reforms, I think tax simplification is extremely important. Frankly, no Government since the chancellorship of Nigel Lawson have taken tax simplification seriously in this country. The former Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), took an interest in this matter—he created the Office of Tax Simplification—but, in fact, relatively little happened, and the tax code only increased in length. Tax simplification need not cost the taxpayer anything at all, but it would make a huge difference by making it easier, not harder, to employ people, to grow the economy and to get investment into this country.

On our tax competitiveness, it is extremely important that we continue the pattern created by the previous Chancellor of reducing our corporation tax to levels that are among the most competitive in the world. Clearly, there may be new challenges ahead with the United States, if indeed they materialise, but it is extremely important for us to persist. I thought the former Chancellor was right, despite some rather opportunistic criticism from the Labour party, to reduce capital gains tax. Even with the changes, capital gains tax will remain higher under the Conservative Government than it was at the end of the Gordon Brown era, so that intervention by Labour was really baffling. We need an economy that is the most tax competitive we can possibly make it.

We have already spoken about research and development. Incentives for research and development, such as the reliefs created by the coalition Government, have been extremely effective, as I know from speaking to large and small companies in my constituency, and I would like them to continue.

As we approach Brexit, it is extremely important that the Department starts to look, industry by industry, at what low-cost deregulation could be achieved that does not sacrifice workers’ rights or infringe sensible environmental protections, but may be a game changer in those industries. In the two or three industries I have worked in—the legal sector, and running an auction house —there are European regulations the repeal of which would not be offensive to most people in this country, and that would give us a small but none the less significant competitive advantage over our major competitors in other countries. I will not bore the House with the details of such regulations, but the Government, in preparation for our departure from the European Union, should now work on a sectoral or industry-by-industry basis to work out which they are.

The penultimate point I want to make is that we should give greater thought to the long-term sustainability of the British economy. I am concerned not only about the deficit, but about welfare, and the Government should look at our state retirement age. It is inevitable that with an ageing population all of us will need to work longer. This produces a number of major challenges, particularly for those who work in sectors, such as on the shop floor or in heavy industry, where the work is extremely tiring. There is no doubt that people will need to retire or change career at a later stage. It is inevitable that the Government will have to look at this and act quickly if we want to signal to the markets our continued careful stewardship of the economy.

It is extremely important now, particularly as we are leaving the European Union and setting our sights on the world beyond, that we invest more of our time and effort in creating the kind of entrepreneurial culture found in the United States that this country has never quite managed to replicate. This will mean more allowances for entrepreneurs. I would like to see entrepreneurs’ allowances preserved, if not increased. I would be interested in them being focused on longer-term investments. At the moment, most reliefs are available after, I think, only a year of holding assets. They could be focused on investments further in the future.

Savings (Government Contributions) Bill

Debate between George Kerevan and Robert Jenrick

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[Robert Jenrick (Newark) (Con)]

It is a pleasure to speak briefly on Second Reading and to support two schemes that are an excellent part of what should be a wider strategy to tackle a fundamental and chronic lack of saving in all age groups and all income levels in our country. I want to say a few words about the schemes themselves and then about the scale of the problem and what more the Government might like to do in the years to come to address a chronic issue that should trouble us all, particularly the Treasury.

The problem is greater than many of us like to imagine; the state of saving in this country is worse than we like to kid ourselves. I remember going to visit my grandparents when I was a child and seeing on their mantelpiece a jam jar in which they used to put sixpences to save up for things such as a holiday to Blackpool and for rainy days, should things have got worse. Back then, I think they were the only people on their street who did that and who could afford the coach to Blackpool once a year. I think that my grandmother would put half a crown in a box just below the sofa, to save up for something or other every year, such as a new chair or stool for the house.

That seems like another country and another age—something that could never happen nowadays, when we are all so much richer and have so much greater access to spending. Of course, the statistics—we have heard some of them already—show that that is not the case at all.

Those experiences come from a time before the rise of hire purchase, credit cards, overdrafts and mortgages, all of which, although they have brought with them problems and difficulties that we have to cope with, have created a safety net of sorts against the real fragility that previous generations used to feel, going back as long as anyone can remember. The historian in me thinks of medieval, Georgian and Victorian times, when people used to feel that they were living fragile lives because they could fall from what were then called respectable lives into abject poverty purely as a result of ill fate, including illness, losing a job and having an unscrupulous landlord.

We like to think that those things could not happen today, but, of course, they can, and the statistics that we have heard from both Front Benchers show that very clearly. A quarter of households have less than £1,100 in their total financial assets, and debts of more than £3,500. One in 10 of us has available savings—rainy day money in the jam jar on the mantelpiece—of less than £100. That means less than £100 if someone happens to lose their job, if their company goes bust or if they were in the private rented sector and had an unscrupulous landlord. That should make us all very worried indeed.

Even beyond the poorest in society—those who should be very concerned about short-term saving—there is a crisis in long-term saving, and it looks more and more like an impending disaster for the country. We are all—rich and poor, young and old alike—simply not saving anything like enough.

The latest Deloitte survey shows that, by 2050, the retirement savings gap—the difference between what people will save and what they need to save, if they want to have a reasonable standard of life in retirement—will be £350 billion, which is an increase of £32 billion from five years ago, despite the many measures introduced by the previous Administration and the coalition. On average, each of us has to put away an extra £10,000 every year to avoid what we could think of as a miserable old age. Even people on middle and higher earnings—including all of us in this Chamber—would probably struggle to do that, if we want to pay our mortgages, bring up our children and enjoy a reasonable standard of living in the interim years.

One reason for that, among others, is that we are living much longer. Not only will future Governments struggle to maintain current levels of state pension payment, but we are spending longer in retirement and the cost of retirement income has risen. The latest BlackRock survey calculated that for a 70-year-old male to buy £1 of retirement income via an annuity would have cost £6 in 1970, but today it would cost £12. The cost of retiring is rising dramatically. We all know this, but it is worth underlining that we need a fundamental change in our cultural attitudes towards money and saving.

[George Kerevan (East Lothian) (SNP)]

Many of us in the Scottish National party would agree with everything that the hon. Gentleman has said so far. However, the argument against the lifetime ISA is that far from encouraging extra saving, it diverts existing savings from pensions into housing and stokes up the housing market. It does not actually resolve the problem that he has described so eloquently.

[Robert Jenrick]

I am interested in the point that the hon. Gentleman makes, and I will say more about the lifetime ISA in a moment. The point of it is that many of us in our 20s and 30s—I am just about in that category—are more preoccupied with getting on the housing ladder than we are with looking out for our retirement, and that is a major worry for the Government and for future Governments. The lifetime ISA is flexible, however, because it enables people to spend money in the early years to try to get on the housing ladder, and later to convert the product into something else with a view to retirement. The hon. Gentleman raises a major problem, and we need to look at many solutions; this, I am afraid, is only one.

There needs to be a fundamental change in all our attitudes. We should not purely seek instant gratification; we, as individuals, and the Government must promote ways in which to defer gratification through saving, in contrast to our present, quite corrosive, consumer attitude.

I warmly welcome the lifetime ISA. It is an extremely popular product and there has been a lot of interest in it. I do not represent a particularly wealthy constituency— the average wage is just below the national average—but many of my constituents have said to me that they would like to take up the lifetime ISA. Clearly, offering a 25% top-up as well as the usual tax advantages of an ISA gives us all a strong incentive to save. ISAs are popular, as we know from the millions of people who have taken them up over the years. Contrary to some of the comments that we have heard today and comments in the press, ISAs are simple. We all understand them, and they are part of our saving culture.

I welcomed the news in April that the limit would be raised on the standard ISA from £15,000 to £20,000 a year. That might sound like a great deal of money to many people, but as the problem of insufficient saving affects all income levels, it is an important measure. This is an exciting development for those of us—particularly the younger generation—who will not benefit from generous final salary pension schemes. Although the scheme is not intended to take over from pensions, it creates more flexibility in the sector. Under the previous Chancellor, we saw that across a whole range of issues to do with pensions, flexibility is key.

The lifetime ISA will help younger people to save for a deposit, which is, as we all know, the primary preoccupation of every young person with more than a basic level of income. If this vehicle allows us to help any of them to get on to the housing ladder and then to convert to a product that will help them to save for the rest of their working lives, it will be very useful.

Help to Save explicitly does the same job for those on very low incomes. I appreciate that there are many people, including many in my own constituency, for whom saving seems like another country; it is extremely difficult for them to do. But the alternative is to do nothing and to accept that we live in a country where people cannot save in that jam jar, and where the Government cannot create mechanisms to incentivise them to do so and top up what they have saved. The 50% contribution rate is clearly a great incentive, which we should all appreciate and welcome.

Rather as the IFS has said, it would be helpful for the Government to do more work on understanding which groups are the most critical in terms of saving, and to develop more products that specifically target the core group that we are most worried about—the people who have only £100 or £1000 in the bank as a rainy day fund. That is a very worrying state of affairs.

What else should I raise? One area we should look at is savings interest tax. I am in favour of simple and bold tax reforms that will not complicate the already far too complicated tax code even further, but send everyone in society the extremely clear message that the Government believe we need to save more and will back that up with action. I would strongly welcome a further move to take more people out of paying savings interest tax. The announcement in April, creating a £1,000 threshold for those on the basic rate and a £500 threshold for higher rate taxpayers—was excellent, and we should look at more changes, not least because current levels of interest rates are so pitifully low that the Government are receiving very little, and rapidly declining, tax revenues from savings income. In 2013-14, the income to the Treasury was £2.8 billion, but it is estimated to be £1.1 billion this year and to continue to decline further. Those are obviously large sums, but what would create a greater incentive and give a stronger signal than to say that we will no longer charge tax on savings interest?

My last point is simply to reiterate the one made in debates in recent weeks, which is that interest rates are too low in this country. That has had a very corrosive impact on pensioners and anyone trying to save in this country, on the gap between the rich and the poor, and on the wider economy. I, like many others, was delighted to hear the Prime Minister imply in her speech in Birmingham that she would like to take action on this matter.