The Economy

Lord Davies of Oldham Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I, too, begin by paying tribute to Maurice, Lord Peston. We first met 50 years ago, when I was a humble academic seeking to launch a degree in an institution that eventually became Middlesex Polytechnic and, later, Middlesex University. Lord Peston—or just Maurice Peston as he was then—was one of our external examiners. The other crucial examiner was John Rex, a formidable intellect in the field of social science. Lord Peston was of course also an extremely able social scientist and economist. The difference between the two was that Lord Peston was always looking, if improvement was needed, at how that could be encouraged and, if things were going well, how that could be reinforced. John Rex was his diametric opposite. Perhaps we benefited from the fact that there was such a contrast between the two, but I certainly benefited from Lord Peston. Neither of us would have wagered that we would be meeting seven or eight years later when I was a PPS to the Deputy Prime Minister at the time and he was in the Department of Prices with Roy Hattersley, later Lord Hattersley. After that time, Lord Peston carried on with his academic career and then arrived here two decades ago. I came much later but I was not at all surprised by the huge reputation that he enjoyed in this House. He combined the two features that are so much appreciated all around the House: having real expertise and being well worth listening to on all occasions. He also had a sense of humour and a keenness to enjoy the company of others, which I think shone through everything he did and made him so greatly appreciated in this House.

The Government are asking us to look at their steps towards strengthening the economy. The first thing we had better do is to disregard their track record. It will be recognised that in the first years of this Administration—in coalition of course, but with the Conservative Party being quite obviously most critical to it—and even after the economic disaster that befell this country and others in 2007 and 2008, the coalition Government had come to power with a fiscal deficit of only 8% and, crucially, a growth rate of 3%. The Government soon put paid to the latter. The Chancellor wasted no time at all in demolishing hopes of that growth rate being sustained. As my noble friend Lord Hain clearly identified, the Chancellor also massively missed his deficit target in 2015, when we were meant to see the whole of the deficit cleared. It was of course back to where it had been five years before.

Now the plans are quite clear. It was evident in the last Budget that the Chancellor intends to pursue austerity up to the next general election in order to have a surplus in the year of the election. They will be the first Government who pursue austerity as late as that, but that is nevertheless their intention. The OBR gives him a 50:50 chance of making it. Are we meant to lay a wager on a 50:50 bet that the Government are going to get things right in these crucial respects, when they have got them so wrong before? Yet the Chancellor persists in believing that a balanced Budget is the foundation of economic growth.

Of course, what has been missing from this debate is the historical perspective. The historical perspective for when a Government set out to do exactly what this Government are doing is the 1930s. Does anyone think that the constant pursuit of budget equilibrium proved the solution to Britain’s problems at that time? No, the solution to Britain’s problems and low growth in that period was the growth of the armaments industry—state investment on a very substantial scale—as armaments began to develop as we recognised the threat presented by Nazi Germany. Surely the Government must recognise that the state has a role to play in investment if we are to emerge from the position we are currently in.

In his opening statement, the Minister was generous enough to recognise that despite the fact that he has some insights into improvements in certain aspects of productivity, the perceiving public—including investors and people taking decisions about opportunities in the economy—regard our low productivity as acute. No one doubts, least of all the OBR, that productivity is the key to success but the Chancellor has seen output per worker fall to a level that puts us last but one in the list of G7 countries. Before the 2007-08 crash, productivity in this country was increasing by 2%. Since the Chancellor has been in office, it is 0.2%. That is the magnitude of the problem and the failure in the key issue in the development of the economy.

The Chancellor recognises that the economy needs to be supported by more investment. Why are we getting low investment? We know what the outcome of low investment is: employers employing workers at a very low rate, so that even the Government have to step in and increase the basic wage rate because cheap labour takes the place of the capital investment that is absent. If we are going to seriously increase the living standards of our people, we have to have a strategy for investment. If the private sector will not do it, or has not been doing it sufficiently, far from the state withdrawing, it is important that the state steps in. That is why we do not want infrastructure projects on paper; we want infrastructure projects on which work has begun. We do not want years of dither over whether or not we should expand airport capacity; we want decisions about the very difficult issue of additional runway capacity in the south-east.

Far from the Chancellor encouraging state enterprise, far from any Minister suggesting that they have a case for state enterprise in their department, we get the kind of situation we had with the east coast main line. When the private sector collapsed, a government agency stepped in and produced a high level of service, which was much appreciated by passengers. There was considerable public support for the franchise being renewed for those who were running it. Of course, the Government forbade any state intervention. They are prepared to countenance state aid for the German or French state railways, but not for the successful British department. That shows the extent to which ideology—the pursuit of the small state in which the Government play a very limited part—actually defies rationality when the evidence points in the other direction.

The Government also pay very little attention to the chronic situation of our balance of payments. A fair percentage of noble Lords who are present today are mature enough to recall that the 1970 general election turned on the import of two American Boeing aircraft because the test was whether the Government had succeeded in producing a balance of payments surplus. We are in an absolutely chronic state of destitution as far as our trade balance is concerned. It looks as if very little is being done to change that.

Not only do the Government not invest in infrastructure, it seems that they do not give support where it is needed. The noble Lord, Lord Mair, made it clear that support for the engineering industry would be the backbone of significant development in our manufacturing industry. We need manufacturing; we cannot rely totally on services. We need a manufacturing industry that is capable of selling abroad. That means that we have to think about the education of engineers and the status of the profession in this country.

More than that—the noble Baroness, Lady Kramer, hinted at this—we need to look at the skills that are beyond and different from the university-level skills. We all take enormous pride in our universities. My noble friend Lord Bhattacharyya should certainly take pride in the relationship between his university and industrial development in Coventry and Warwick. We know that Cambridge has produced superb relationships between the university and the development of enterprise. There is not enough of it going on but at least the universities are largely protected from the Government’s onslaught on publicly supported expenditure—not so for further education and some aspects of schools.

As far as the schools and sixth-form colleges are concerned, not only is there a brutal onslaught on their resources but the Government have prescribed a national curriculum which militates against certain aspects of vocational education. Is it surprising, therefore, that our young people constantly subscribe to the notion that the only achievement they can expect to be measured against is passing academic examinations and making their way to university? I would be the last person to seek to deter anyone from doing that but we need opportunities for others. We certainly need opportunities for education in the skills that the universities do not provide and which the nation sorely lacks.

We have proposals from all the candidates in the London mayoral election; wider than that, we have the parties competing on the concept that we need to tackle our chronic housing crisis by more building. That is not just a problem for the south-east and London, although that is where the problem is most acute. Large numbers of our people are inadequately housed. If you told the people whom I used to represent in Oldham that the housing crisis is only in the south-east, they would point out the limitations that so many of them have with their housing at present.

When the construction industry responded to the signals that we need more housing, what was the first thing it did? It complained that it cannot get the skilled people it needs to do the work. Yet this Government are decimating further education colleges, with many being forced to combine, and it looks as though others will have to close. What kind of skills development are we guaranteeing for so many of our young people if their opportunities for vocational education and skills development—as if those were some kinds of dirty words —are condemned by a lack of resources due to the cuts that the Government are constantly pursuing?

It is quite clear—unless the Minister is able to give much more convincing answers to the key questions raised in this debate—that we are not going to get an improvement in our economy. I would say, replying for the Opposition, that Europe is not one of those issues. I have agreed with every word that noble Lords have said about the dangers to our economy of withdrawing from Europe. The Minister and I are bound together as brothers in common endeavour on that issue. However, I also agree with the noble Lord, Lord Bilimoria, that those of us who support Europe have been complaining and campaigning about the democratic deficit for years. He is right to point out that aspects of the European Parliament and its structures are totally inadequate. We should do more about that than we have in the past. As he said, however, there are no grounds for withdrawal from Europe on that basis. We are glad that we will have his vote, if not his wholehearted support, in fending off that particular threat to the economy.

The Office for Budget Responsibility has said that the Budget does not offer a guaranteed improvement in productivity. It does not say that this Government offer an improvement in our trade imbalance. However, it was not presented with a question which my noble friend Lord McFall asked, as did my noble friends Lord Haskel and Lord Hanworth in a different context. My noble friend Lord McFall asked: when will the Government really get to grips with the banking culture and make sure that the nation gets the returns it deserves after bailing out the banks? My other two noble friends asked: when will the Government address the nature of the Companies Act and the inadequacy of the structure in which our corporate business currently operates? The OBR also said that it was scaling down its estimate of the prospects for growth. It was pessimistic on that, too. That is enough to chill the bones of the average Minister. It is not a strong economy.