Economy: Growth

Lord Davies of Oldham Excerpts

Thursday 16th May 2013 Lords Chamber

[Lord Davies of Oldham]

My Lords, I congratulate my noble friend Lord Soley on securing this debate and concentrating on the issue that must be of prime importance to all of us: how we restore growth to a flatlining economy. Of course, there are rather fewer contributors today than there were in the economics debate on Monday. It is also true that just before the end of the previous Session we had a major debate on the issue, so one would have thought that the relatively small number of noble Lords participating in this debate reflects the fact that others have made their contributions already.

This debate concentrates on growth. I hope that the Minister in replying will indicate where he thinks growth is coming from and acknowledge the danger our society is in from an economy that has flatlined, as ours has. It is all right for the noble Lord, Lord Bates, to indicate that six times as many jobs are being created in the private sector as are being lost in the public sector, but then why do the latest unemployment figures show a distinctive and frightening rise? Why are a million of our young people still unemployed? What does it mean for the next generation when jobs are so difficult to obtain?

I also appreciate the self-restraint of my noble friend Lord Soley on aviation, which is nothing like the self-restraint of this Government, who have pushed aviation policy not into green shoots but into some distant long grass before any decision will be taken. Let us look at long-term investment by the Government. In aviation we have to wait a considerable time before decisions will be taken, and the much-vaunted HS2, which we welcome, is also a considerable period away from any significant investment being made. In the depths of a recession at least certain factors ought to work to the country’s advantage. After all, sterling has depreciated by almost a fifth. Yet has that produced a significant increase in exports? No, since that devaluation of sterling we have seen our balance of payments deficit get worse.

No one should underestimate the problems that accrue from the crash of 2008, but our challenge to the Government is that they have pursued the wrong priorities. The noble Lord, Lord Bates, compared Britain with France. There was never a mention from the government side comparing Britain with the United States of America. Has no one from the government Benches looked at the Michigan economy and seen what the response has been to a Government who pumped in resources to save two of the biggest car manufacturers in the world and to sustain employment and their balance of payments position by ensuring that such critical industries were not lost? Of course, for our Government such action would be complete anathema.

We are content to see austerity being pursued to such an extent that no one in our society with resources has the confidence to invest. Quantitative easing goes to banks, but banks do not have the confidence to lend to industry. In industry, many of our major companies are awash with resources, with £670 billion in cash, but they do not invest either. Why? Because the pursuit of austerity and impoverishing our people throttles demand. What is actually happening is that there is very limited purchasing power in the economy. It is of course right that we pay some regard to the activities of the Government in seeking to promote small businesses, but every noble Lord knows that the contribution made by small businesses to our balance of payments and exports is quite limited, although I note the points made by the noble Baroness, Lady Kramer, and agree with a number of them. We have to get our major areas of investment right, and at the present time we have not because of the absence of demand.

My noble friend Lord Bhattacharyya indicated how we could improve crucial aspects of the supply side of industry. There is no doubt that the Minister ought to respond positively to his recommendations in this debate. With such a low level of demand in society, it is extraordinarily difficult to get investment going again. It is not as if the Government exude confidence by their actions. After all, their austerity targets are missed. We were meant to see the deficit disappear by 2015, but we are now working to a longer-term cycle of 2017, with a certain elasticity even in that. We were meant to make ourselves pristine for the credit agencies, but two of the credit agencies have reduced our three-star status. We were meant to hold our heads high in the international world, but a visitation from the IMF has been presaged by serious criticisms of the Government’s position for having produced an economy so devoid of growth.

That means that the Government are patching up rather than following an intelligent strategy. They have to patch up. Think of the schemes that have already failed. Think of Merlin, which was meant to give some substance to the banks. Think of the insurance strategy, which the noble Lord, Lord Bates, welcomed because the north of England was included, whereas London and East Anglia were not. The problem is that the strategy produced only a tiny fraction of the jobs that it was predicted would follow.

Even in the most recent Budget, have the Government learnt lessons? Of course they are right that we should address the issue of housebuilding and achieve stimulus in those terms, but they have not suggested that the resource should be directed at the first-time buyer. They are not even suggesting that the resource should be directed only at someone buying their first house. It looks as if all that they will do is give a further twist to the house price spiral, thereby making even more remote the opportunities for people with limited resources to get into the housing market.

When we are critical of the Government about demand, it is because every Budget under the Government has significantly reduced purchasing power. The Government must recognise that if they slash benefits, many of which also apply to people in work, they are cutting demand. They must appreciate that if they direct their significant resources to the elite in our society, particularly those who enjoy millionaire status, it will be such an unfair society as to be demoralising for people who work hard but receive very little. One statistic of which the Government should take note is the significant fall in real wages since 2009. That is not just a real reduction in purchasing power among people at work but a worrying reduction in confidence.

If all that was the result of government incompetence, we would have real worries, but it would always be hoped that lessons could be learnt. It is not government incompetence. This strategy is pursued by a Government who believe fundamentally in a smaller state, who want significantly to reduce public expenditure and, in doing so, deliberately create circumstances in which there is higher unemployment and lower demand in society. That has underpinned the whole strategy of the Chancellor of the Exchequer and the Prime Minister since 2010, and that is why the Minister must respond on the state of the economy, which at present is a cause for concern on every side.