Productivity

Kevin Hollinrake Excerpts

Wednesday 17th June 2015 Commons Chamber

[Chris Leslie]

I think there is a case to be made for ensuring that we focus on the morale of those in employment. There is an optimal point from which morale can dip and fall. We have to focus on what creates the optimal circumstances for those in work to produce the amounts that our economy needs. That is all part of this complicated picture.

When we have managed to get the Chancellor to talk about productivity in the past, he has referred to a “productivity puzzle”. If we are looking for clues to the solution to that puzzle, looking more closely at the nature of our economic recovery is important. It still feels a bit stressed, quite fraught and fragile. Reflecting on that is part of the solution.

On skills, just a few weeks ago, the Office for National Statistics published its analysis showing that the share of high-skilled jobs in the economy is falling relative to the share of low-skilled work, which is of course taking its place. The Bank of England’s last inflation report stated that since mid-2013 employment growth had been more concentrated in lower-skilled occupations, concluding that this shift in the composition of the labour force could have dragged down aggregate productivity growth over the past two years.

That is not something that we should simply accept. I do not believe that we are just at the mercy of events and unable to influence our economic productivity. On this side, we believe that it does not have to be that way. History shows that Britain can do better. By contrast with the traditional Conservative approach, which is to step back and hope that productivity magically springs from the market out of thin air, we take a very different view. We believe that decent infrastructure and decent public services can support business growth. Motorways that flow freely and trains that commuters can get on; tax offices that answer business queries efficiently rather than keeping their company staff always on hold; swift treatment of sick employees in a decent NHS: all that is part of the productivity story, as is an education system that supports a workforce with high-quality skills. So many aspects of our public services are crucial for our future economic productivity. Each of those depends on the Chancellor making the right fiscal choices for this Parliament. This should have been at the top of the Chancellor’s agenda throughout the last Parliament; for him not even to mention it in the last Budget speech was a grievous error.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is important to look at the facts. The hon. Gentleman quoted the ONS. Does he agree that when the ONS talked about oil and the financial service industries, it said:

“Together, these two industry groupings account for the majority of the fall in productivity since Q1 2008.”?

[Chris Leslie]

As I said earlier, different sectors face different productivity challenges. Ultimately, if we think that this is just a problem in one or two sectors, we would be wrong. We need to address this forensically and make sure that we look from sector to sector to assess the problem in a mature, evidence-led way. That is what we need to do.

I am aware that many Members want to join the debate because they believe that productivity is an important topic. I respect them for that, but it is important not to let this issue pass without seeing the connection between productivity and the health of our public finances. We still have a £75 billion deficit in this country and I would like the new Chief Secretary to at least acknowledge in his response to the debate the truth that stronger productivity is crucial for repairing the public finances.

We need sensible savings across non-protected Departments to reduce levels of public expenditure, but if the Chancellor makes the wrong fiscal choices in the forthcoming emergency Budget he could make the situation far worse. There is a hard-headed business case for protecting and prioritising those services that enhance investment, skills and innovation. That is the responsible fiscal approach the Chancellor should take. Productivity should not be adversely affected by his fiscal choices and that is the point that I hope the Chancellor will understand. Whether he does and whether he can see through his political ambitions to the economic consequence of the decisions he takes are the important issues.

I have written to Robert Chote, the director of the Office for Budget Responsibility, to see whether we can make some progress, working across parties, to try to get a better evidence-led approach to the impact of the choices the Chancellor faces on productivity and on levels of public investment. I think that an OBR review would acknowledge the centrality of the productivity challenge and would help to make the right choices for the country. It would be better to have that evidence-led understanding of the consequences of alternative fiscal choices.

--- Later in debate ---

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I am grateful for the opportunity to speak in this important debate. It is also a pleasure to speak after the excellent maiden speeches we heard from the hon. Member for Sheffield, Brightside and Hillsborough (Harry Harpham) and my hon. Friend the Member for Hertsmere (Oliver Dowden).

It is important to look at productivity in the context of the overall economy. Productivity is not a means to an end, but an end itself. We must look at the reasons we have difficulties with productivity. We must avoid short-term thinking, let the positive effects of the past five years take hold and take a long-term approach to making progress on the issue. The overall economy is doing well; employment is up by 2 million since 2010, and in 2014 ours was the fastest growing major economy. On 8 June the CBI said that we should expect

“solid, steady and sustainable growth”

with rising incomes. Business investment is making a strong contribution to growth. It is important that we do not damage what we have already achieved. We need to look at the facts behind the data, including the fact that oil and financial services are skewing the figures on overall economic and productivity gains.

The key determinants of productivity are competition, regulation, investment and education. In my experience, the best way to drive productivity, efficiency and innovation is by encouraging competition. When a business person is faced with stiff new competition, time and again they raise their game, work harder and motivate their staff. Some 70,000 new private sector businesses were created in the previous Parliament, creating 2.3 million jobs. The Government are doing what they do best: setting the stage and letting business get on with creating the jobs.

On regulation, there is now less red tape in this country than there was five years ago. In 2010 we had the second highest level of red tape in the G7, but we now have the lowest. Some 50% of businesses want the Government to focus on reducing regulations. Labour introduced six new regulations every day. We must have a Government who understand business. This Government want to cut the costs of red tape by £10 billion over this Parliament.

We need to encourage investment. We must invest in human capital, have better links with schools and universities and move over time towards the living wage. Tax credits are an employment subsidy, and subsidies create complacency and inertia. We need a long and stable tax regime. Capital allowances must be consistent, because businesses need a long-term understanding.

[James Cartlidge (South Suffolk) (Con)]

My hon. Friend makes a brilliant point about tax credits. As a small business owner, I was shocked to receive a call from one of my staff saying that they did not want the pay rise I had just emailed them about because they would lose so much in tax credits. Is this not a crazy dependency culture that is holding back productivity?

[Kevin Hollinrake]

Absolutely. We need to move towards a living wage over time. Rushing to a living wage too quickly might put jobs under pressure, but I believe that we should move towards a living wage over time and in consultation with business.

We need low and consistent corporation tax, which is what the Government are delivering. Governments should do less, not more, and the tax regime should be the same not only in one year’s time, but in 10 years’ time. Of course we need investment in infrastructure, such as roads, railways and broadband. That is particularly important for those in the hardest-to-reach areas, because rural businesses want a level playing field with those in urban areas. The VAT threshold of £82,000 is prohibitive, because businesses that want to invest but do not want to go over the threshold do not take on new employees and do not invest in new technology for fear of losing a significant amount of their profits.

In conclusion, statistics are important, but they are no substitute for judgment. Our judgment, and the judgment of the people of Britain, is that things are getting better. This is certainly the most business-friendly Government I have ever known. They have done the right things to give businesses the chance to start, grow, prosper and produce more.