Productivity

Iain Wright Excerpts

Wednesday 17th June 2015 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to follow the right hon. Member for Wokingham (John Redwood). I seem to recall reading in the Financial Times three or four weeks ago an extremely perceptive article by him on productivity, so it is a real pleasure to follow him. He has given these issues careful thought.

I am pleased that we are discussing productivity so early in this Parliament. UK output per hour is about a fifth below that of the rest of the G7. It is the largest gap since 1991. In France, output per hour has increased by 2%. In the US, it has increased by 9%. Ours has not shifted. It has been said time and again that if we want rising living standards and a historically decent long-term economic growth trend of 2.5% or 3%, productivity needs to improve.

[Chris Philp]

In France, productivity figures may well have been achieved at the expense of extremely high unemployment. Is the hon. Gentleman suggesting that he would like to see very high unemployment here in exchange for fractionally better productivity?

[Mr Wright]

I represent a constituency in the north-east that has suffered and still bears the scars of long-term unemployment. I do not want to see unemployment at all. We need to address that. But in order to remain competitive in the global economy, we must address productivity.

The Chief Secretary to the Treasury said that not all sectors of the economy had been affected by stagnating productivity. It is true. High-value manufacturing sectors such as aerospace and automotives have seen huge leaps in productivity in recent years. They have led to better, more innovative products that are more competitive than our rivals’ products, and which are sold in increasing numbers around the world. He mentioned Nissan in Sunderland, which produces a car every 61 seconds, to rival any other car plant on earth. This week we are seeing the Paris air show, where about £7.8 billion-worth of products from enterprises based in the UK have been sold around the world. We need to encourage this virtuous cycle, because that will lead to more well-paid jobs in these sectors. It is the model of the British economy that we should be encouraging.

To be fair, credit must be given to Vince Cable and David Willetts when they were in the Department for Business, Innovation and Skills for continuing the approach set out by the Labour Government. That long-term approach, a mature business policy transcending individual Parliaments and thinking about what is required for our economy for the next 20 or 30 years, gives business the confidence to invest for the long term. We have seen the dividends of such an approach in globally competitive sectors such as aerospace and automotives, but I worry that we have seen no endorsement of that approach from the new Business Secretary. It is concerning that in his interview in the Financial Times about two weeks ago, he seemed to draw a line under the industrial strategy that has helped competitive sectors succeed in Britain.

Great examples of business-Government collaboration, such as the Automotive Council, the Aerospace Growth Partnership and the Aerospace Technology Institute, which have brought billions of pounds of investment into Britain, no longer seem to have Ministers’ attention. Is the new Business Secretary going to adopt a new approach? Is that long-term business policy going to wither on the vine on his watch? That would be to the detriment of long-term, high-value economic success and improvements in productivity. I hope that when he responds, the Minister will provide clarity as to what the new Government’s industrial strategy will be.

A key way to improve our competitiveness and productivity is to invest in new technology and innovation. However, our long-term performance in that respect is woeful and has been for far too long. UK gross domestic research and development expenditure, as a percentage of our GDP, peaked in 1986 at 2.03%. In the past 15 years or so, R and D spend as a percentage of GDP has been in the range of 1.59% to 1.73%, well below the EU average and significantly below ambitiously innovative nations. South Korea spends five times as much on R and D—not as a percentage of its economy, but the actual amount—as the average European nation, and that relentless focus on innovation and moving up the value chain has reaped massive rewards. Half a century ago, South Korea was poorer than Bolivia and Mozambique; now, it is richer than Spain and New Zealand. That is the lesson we have to learn.

We are living in what could be the most significant era of challenge and innovation for humanity. Britain’s historic strengths in science and in areas such as pharmaceuticals, aerospace and motor vehicles should and could be harnessed much more and spread throughout the economy in a much more balanced way. We are complacent in the extreme if we think we can carry on as before and not provide more resources to R and D. So will the Government commit to prioritising science? What is the future of the catapult centres, which have seen Government and industry collaborate on a range of issues relating to technology and innovation? Will funding be secure in those areas?

A further way in which we will rise up the productivity chain and in competitiveness is by emphasising skills. The days 40 years ago when somebody in my constituency would leave school on a Friday at the age of 15, start work at the steelworks on the following Monday and stay there for 35 years have gone. That will never come back. The modern British workforce will need to adapt and retrain and, crucially, be given the opportunity to do so. Men and women in Hartlepool and elsewhere may be made redundant in their 30s and 40s, and will need the means to retrain for a new career—quite possibly several different careers. But BIS, supposedly the Department for growth, is cutting the adult skills budget by 11% in this financial year.

The total budget from the Department for adult further education and skills funding will fall not just in real terms, but by 5% in absolute terms. When the BIS cuts took place during this Parliament, announced by the Chancellor in the Queen’s Speech debate a couple of weeks ago, £450 million was stripped out of further and higher education. That will not give us a modern, innovative workforce.

Should we not be prioritising adult skills? We should have flexibility areas to ensure that we can maintain Britain’s future prosperity. As Neil Carberry, CBI director for employment and skills, said today:

“If we are to deliver sustainable higher wage growth, we need to see a rise in productivity. That means businesses investing in skills, and the Government helping firms innovate by supporting investment in next month’s Budget.”

I hope that for the sake of future prosperity, productivity gains and our competitiveness as a nation, the Government will respond to those concerns and make sure that we can be a high-value, innovative nation that can compete with the rest of the world.