The Government’s Productivity Plan

John Redwood Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I welcome the opportunity for the House to debate the supplementary estimates affecting the Department for Business, Energy and Industrial Strategy. It is a real honour and pleasure to chair the Select Committee and I am particularly fortunate to lead a Committee with excellent hon. Members—I see some of them in the Chamber: the hon. Members for Cannock Chase (Amanda Milling), for Derby North (Amanda Solloway), for Edinburgh West (Michelle Thomson), for Bedford (Richard Fuller) and for Warwick and Leamington (Chris White). We try to work hard together to put in place policies that ensure workers in this country have higher skills and wages and greater protection, in firms that are productive, competitive, profitable and have barriers to scale up removed.

The title of today’s debate references the Government’s productivity plan, and I shall come on to that in a moment. However, given that this debate is about the estimates, I want to mention a couple of points regarding them. On a broader point, in my time in the House, it has always struck me as odd, even concerning, that billions of pounds of taxpayers’ money are voted through on the nod without any real debate, scrutiny or challenge. This debate will be about the Government’s productivity plan, and most of the contributions, including my own, will be on that document, which already seems to be becoming rapidly obsolete. At the end of it we will be asked to approve billions of pounds. The manner in which estimates are presented is opaque and often downright unhelpful. It is difficult to follow the money.

Of course, Departments produce annual reports, which are more helpful. They are scrutinised by Select Committees such as our own, and the National Audit Office conducts its own work, but the basic point of this place is to scrutinise and to challenge the Executive and then legitimately to permit the Government’s wish to tax the general public. I am far from convinced that the current system allows that to happen in an effective manner. Therefore, I look forward to the Procedure Committee coming up with some more radical improvements in this area.

The supplementary estimates reflect the machinery of government changes, with two Departments, the Department for Business, Innovation and Skills and the Department of Energy and Climate Change, coming together and losing responsibilities for further and higher education and for exports. BIS and DECC had resource savings targets of 16% and 17% respectively by 2020. The BIS Department had the “BIS 2020” publication, which contained a number of proposals to make budget cuts in this period, including, for a Department tasked with regional growth and pushing the northern powerhouse, the closure of the Sheffield office. A large part of the savings for the BIS Department was to be achieved through changing the way further education and higher education were to be funded. However, given the machinery of government changes, that option is no longer available to BEIS. Therefore—this relates to the point I made on the opaqueness of the estimates—it is impossible to tell, based on the information in front of us, what the planned savings of the new Department are and whether the “BIS 2020” programme is continuing.

When the Secretary of State came before the Select Committee before Christmas, I asked him whether similar savings of 16% to 17% would be required. He confirmed that. He said that the “BIS 2020” programme was no longer available, because it was a new Department, but he did not offer any alternative. When I asked what things the Department would stop doing in order to make the necessary cuts to the resource budget, the Secretary of State said:

“We are going to set out the proposals to the Department and I am sure the Committee will want to see that. I am very happy to send them to the Committee to look at. We want to take the opportunity of the two Departments coming together to, as it were, re-engineer the way that the Department is run to make sure that we take advantage of a big opportunity to tie things up here internally.”

That is very clear. However, no such proposals have been brought forward. I would be grateful if the Minister could outline what specific savings the new Department has to make and precisely how he intends to make those savings, including what activities will be stopped. That is in the context of the supplementary estimates before us, which state that the administration costs of the Department are rising from £425.6 million this year to £528.5 million next year. There is no explanation for that in the memorandum. Could the Minister provide one?

On the Government’s productivity plan, the factors regarding the UK’s productivity performance are well rehearsed but worth reiterating. At a national level, productivity has stalled. GDP per hour stands at 17% below its 35-year long-term trend and has only just exceeded the peak it had reached prior to the global financial crash. We as a nation are falling further behind our major competitors. Output per hour in the G7 excluding the UK was 18% above that of the UK, the widest gap in productivity since records began in 1991. That statistic shows the marked differences in performance between ourselves and our competitors. When it comes to productivity, we are above Japan by about 16 percentage points. Italy, however, is 10 % more productive than we are. The US and France are 30% more productive than we are, and Germany is 36% more productive than the UK. Of course, productivity in all developed countries was badly jolted as a result of the 2008 global crash, but the gap between our long-term productivity trend and that of our competitors in the G7 is about twice as big. Productivity and pay are intimately linked. Productivity gains are the way in which real wage growth—and, hence, living standards—can rise.

[John Redwood (Wokingham) (Con)]

Does the hon. Gentleman accept that some countries with very high levels of unemployment can have a higher productivity figure, whereas we put the people to work in lower value activities, which is surely better than them being out of work, because the best way to get a job is to start off in a job that is not so good?

[Mr Wright]

I will respond to the right hon. Gentleman in a moment when I talk about the structure of our employment market and how I do not think it deals with living standards, helps our constituents, or improves the long-term competitiveness of our nation.

It is little wonder, given the intimate link between productivity and pay, that Paul Krugman said:

“Productivity isn’t everything, but in the long run it is almost everything.”

Reflecting this, wage growth has been anaemic. In the period between 2007 and 2015, British workers suffered a bigger fall in wages than those in any other advanced country with the exception of Greece. Average pay fell in real terms by more than 10%. In the same period, real wages grew in France by 11% and in Germany by 14%. Median pay for workers in this country is still around 5% below its pre-crisis peak. There has been a lost decade of wage growth for our constituents, the British workers.

However, the headline nationwide figures for productivity, worrying though they are, mask the stark differences in regional productivity. Gross value added per hour in London is 32% above the UK average. The only other region with productivity above the UK average is the south-east of England, which is 9% above the average. The regions of the north and the midlands—including my own region of the north-east, and those of my fellow Select Committee members, the hon. Members for Cannock Chase, for Derby North and for Warwick and Leamington—have productivity levels between 10% and 15% below the UK average. In the nations of the United Kingdom, productivity in Scotland, which includes the constituency of the hon. Member for Edinburgh West, is 2% below the national average, while in Wales it is 19% below the average. Were it not for the performance of London and the south-east, the gap between ourselves and our major economic rivals, with whom we are competing for orders, trade and market share, would be even more dire.

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[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?

[John Redwood]

I think the hon. Gentleman and I agree on this. My point is that it is easier to get to higher pay, more skills and smarter working if we start from a base of many more people being in work, which is the good news about Britain. None of us is happy with people in low-paid jobs without skills or machine power at their back.

[Mr Wright]

The right hon. Gentleman must accept that although the best position to be in to get a job over the past five or 10 years was to be in employment, people are stuck on low-paid, zero-hours contracts in precarious types of employment. They are not moving on. There is no social mobility or economic progress. We seem to be stuck at the bottom floor when it comes to getting people into employment and that is not the model that we should be using.

I hope that the industrial strategy learns the lessons of the productivity plan. The Select Committee will publish our report into the Government’s industrial strategy later this week, and we hope that it will address some of the matters that the productivity plan does not: a longer-term focus providing more policy certainty; greater collaboration and co-ordination across Government to mitigate the problem of a silo-based approach across Whitehall Departments, as mentioned by my hon. Friend the Member for Hove (Peter Kyle); and the lack of meaningful metrics, milestones and measurements of success. If it is to work and succeed, the industrial strategy cannot just be this year’s model; it needs to be a thoughtful and well-established cornerstone of an economic and business policy framework, and an economic and business mindset, to increase productivity, compete with the rest of the world, and improve living standards for all in this country.

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[Chris White]

We are sometimes in danger of thinking that Germany is so far ahead and advanced that we should try to do our own thing. Germany has a number of ideas that we can borrow and from which we can learn a great deal, meaning that we can advance significantly in manufacturing.

[John Redwood]

Does my hon. Friend also agree that quite a bit of the problem resides in the public sector, not the private sector? Our best car plants are world beaters and have world-leading standards of productivity, but publicly owned Network Rail is way behind the continental railways in terms of productivity. We have the solution in our own hands in the public sector.

[Chris White]

I agree with my right hon. Friend about our automotive plants. However, I will not criticise Network Rail today because it has just announced that it will be installing lifts in my local railway stations, on which I congratulate it most profusely.

The Catapult network is a good example of what can be achieved through innovation. Some £15 of benefit is returned for every £1 of investment, and we should remember the advantages of the Catapult centres as we come towards the Budget. Some 69% of business R and D can be found in the manufacturing sector, which highlights its importance to the wider economy. The UK is also championing the idea of horizontal innovation, whereby intelligence and technologies can be shared across industries, which could have a significant impact on how sectors such as shipbuilding and construction could learn from the best practice of industries such as the automotive sector.

Through-life engineering services—TES—are increasingly on the agenda, with manufacturers going beyond production to retain responsibility for maintaining systems throughout a product’s life. I particularly commend Cranfield University for its work in that area, and I am pleased to co-chair the TES Council, which brings together industry leaders to discuss how best to develop such services. One area in which the UK leads its international counterparts is additive manufacturing, or 3D printing, which we can see at the high-value manufacturing technology centre in Ansty.

We are starting to see a recovery, but productivity in the services sector is outstripping that of the manufacturing sector. It is well documented that UK productivity is weak—stubbornly so, as the hon. Member for Hartlepool said. Job quality, whether through wages, skills and training or employment security, must continually improve for us to reverse poor productivity growth.

As a midlands MP, I take particular interest in the midlands engine initiative and look forward to the publication of the regional strategy—I hope that the Minister will shed more light on that. The midlands has a rich tradition of manufacturing and can be at the forefront of a manufacturing renaissance in this country. However, as has been noted, productivity in the west midlands has been consistently falling against the UK average. The midlands engine is a welcome initiative that can define our priorities and develop the skills we need in key industries such as the automotive sector on which we so heavily rely.

At today’s Treasury questions, I asked the Chancellor about the provision of an adequate energy supply as electric vehicles become more prevalent. Companies such as Jaguar Land Rover are developing technologies that will shape the future of the sector, but they cannot do so without the necessary infrastructure. Electric cars will be the future, and it is important that we provide the necessary power so that we can build their batteries in the vicinity of those car plants. That is the kind of joined-up approach that will be so important.

The final point of the 15 in the productivity plan emphasises rebalancing the economy and regional empowerment. London and the south-east contribute an enormous amount to the national economy, but economic growth should be powered from every corner of the UK.

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[Roger Mullin]

I quite agree with my hon. Friend. Today I asked a question of the Chancellor of the Exchequer, which once again attracted the typical non-answer. I asked whether, given what has happened to businesses over the past few years, with things such as the RBS “dash for cash” and the like, there was not a case for having banks accept their duty of care towards the business community, and small and medium-sized enterprises. We need to look more widely at how we create a context that will really support innovation and risk taking.

[John Redwood]

What study have the Scottish Government made of the big impact on Scottish productivity of the pronounced decline in output from the North sea as the fields mature? What can they do to offset that?

[Roger Mullin]

The best thing I can do is leave that to my hon. Friend the Member for Aberdeen South (Callum McCaig), who is an expert in these matters. He will be summing up for our party and is from that part of the country. I am aware that the Scottish Government have been undertaking considerable work on this matter. Our growth commission is under way, and part of its work deals with looking at precisely the matter the right hon. Gentleman raises. The commission is yet to report.