The Government’s Productivity Plan

Debate between Iain Wright and Robert Jenrick

Tuesday 28th February 2017 Commons Chamber

[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.

[Robert Jenrick (Newark) (Con)]

Before the hon. Gentleman concludes, will he return to the point made by my right hon. Friend the Member for Wokingham (John Redwood)? Perhaps the largest piece in our productivity puzzle is the fact that we have essentially traded some of our productivity for high levels of employment. That is a good thing, so we must proceed cautiously before wishing away any job—even if they do tend to be lower paid and lower skilled.

[Mr Wright]

I thank the hon. Gentleman for reminding me about that intervention. Employment is crucial and having record levels of employment is a good thing. However, we want good, full-time employment on permanent contracts. We want people to be secure in their jobs and able to invest in their own lives and communities with some confidence. Over the past 20 or 30 years, we have moved towards insecurity and precarious forms of employment, such as bogus self-employment, zero-hours contracts or agency work. We have to think about our vision for the economy. Is it about everybody in work being paid pitiful wages or ensuring that we can pull the activities of Government and industry together to upskill people and move them up the value chain so that, ultimately, they have higher living standards?

Budget Resolutions and Economic Situation

Debate between Iain Wright and Robert Jenrick

Tuesday 22nd March 2016 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I would like, if I may, to advance the argument made by the hon. Member for East Lothian (George Kerevan) about the downgrading of productivity. Productivity was the central economic challenge of this Parliament—so said the Chancellor last year. A failure to address the productivity gap between ourselves and our main economic rivals would undermine our competitiveness and reduce living standards, so to address that, the Government published their productivity plan in July 2015.

In our inquiry into the plan—our first in this Parliament—my Select Committee found it to be somewhat worthy but vague, and without the firm delivery and implementation measures needed truly to address the productivity challenge. Of course, it is difficult for any Government to turn around something as substantial and structural as the productivity gap, especially only nine months after the publication of their report, but the downgrade to productivity in last week’s Budget reinforces the Committee’s view that although many measures in the plan were welcome, collectively they did not constitute a radical departure or step change that would really help to boost productivity. Crucially, as the OBR stated in its report last week:

“Lower productivity growth means lower forecasts for labour income and company profits, and thus also for consumer spending and business investment. In aggregate, this reduces tax receipts significantly.”

Productivity improvements require a long-term and sustained approach to business investment, yet the Red Book shows how much business investment—that engine that will power better competitiveness, increase wealth creation and employment generation and, ultimately, bring about higher wages and rising living standards—has stalled. Real business investment fell in the final quarter of last year. The manufacturing sector in our country is in recession. The OBR forecasts that business investment will be 2.6% in 2016, a massive 4.9 percentage points weaker than only four months ago at the time of the autumn statement.

The Government are not helping through their policies. The Chancellor should be encouraging firms to invest in the latest technology, plant and machinery to ensure that they can compete with the most modern kit anywhere in the world, as well as investing in research and innovation to ensure that British-based firms are coming forward with the goods, services and products that the world wants to buy.

[Robert Jenrick (Newark) (Con)]

Is that not exactly why the Chancellor has cut corporation tax and capital gains tax: to encourage companies of all sizes, particularly small and medium-sized businesses, to invest in research and development, new products and the jobs of the future?

[Mr Wright]

I would suggest that the approach on capital gains tax is contrary to having a long-term economic plan, as it encourages short termism—people do not scale up, but sell out quickly. That is a major structural concern.

To a large extent, the Chancellor has done positive things in this Parliament to encourage investment. In particular, the changes to the annual investment allowances are very welcome and will allow firms to invest with greater certainty. Other countries, however, are doing much more, and Britain risks missing out. Addressing the huge disincentive in business rates for firms wanting to invest in new plant and machinery should have been at the very top of the Chancellor’s list, and although the changes to business rates for small businesses were welcome and constituted the largest tax cut of this Budget, it seems ridiculous that the Chancellor did not resolve the ludicrous situation whereby a firm faces a larger tax bill in the form of higher business rates by choosing to invest in new plant and machinery. For a Government who pledged to do all they can to rebalance the economy towards manufacturing and specifically, in the past six or seven months or so, to help the hard-hit British steel industry, the omission of that single measure from the Budget was a significant blow for industry, particularly the steel industry, which wanted the Government to give a favourable signal to invest.