Queen’s Speech

Lord Desai Excerpts

Tuesday 10th June 2014 Lords Chamber

[Lord Desai (Lab)]

My Lords, it is a great honour to follow the noble and learned Lord, Lord Howe of Aberavon. In the short time that I have, I want to do two things. The first is to try out a somewhat novel idea, and maybe it will be one for the Government to take away and work on, and the second is to talk a little more about the manufacturing strategy that has been discussed.

We have now had four years of austerity. By and large, the deflationary move has been successful inasmuch as the economy has now revived. However, there is a particular anomaly which I want to point out and which has not attracted much attention. Our debt is about £1,300 billion, give or take £100 billion here or there. The surprising thing is that the policy of quantitative easing followed by the Bank of England means that the Bank owes £385 billion of that debt. Therefore, we are in the peculiar situation of the Government paying interest to the Bank of England, which the Bank of England returns to the Government with thanks.

Nobody has said this yet, although my noble friend Lord Myners mentioned it in the debate on the Budget, but the Government could take that £385 billion of debt owed by the Bank of England and cancel it. However, there is a snag: against the £385 billion of assets, the Bank of England has created a liability—that is, it has printed money. Therefore, I think that the best thing for the Government to do would be to sell the Bank of England £385 billion-worth of zero-interest bonds so that the books could be balanced and the Government could say what interest should be paid on the £385 billion. This is a very simple, effective device which nobody has thought about but I offer it to the Government out of the goodness of my heart.

By and large, monetary policy has not worked. At best, you could say that it has prevented things getting worse, but only active fiscal policy can do things which monetary policy cannot do, and a device such as that would release funds for fiscal policy to do more than it has been able to do so far. In a sense, it would give the Government a clever escape hatch through which they could save £30 billion or whatever, depending on how much interest they pay on the debt. That is something that I hope somebody will think about.

It may be said, “You can’t do that because you’ll have to print money against this debt”, but the money has been printed and is out there. With QE, the Bank of England bought £385 billion-worth of debt from the market. One alternative would be for it to sell it back and withdraw the money, but we do not need that. Inflation is very low. The central banks are competing with each other to raise the rate of inflation up to 2%. I thought that I would never live to see it, having lived through the great monetarist days when the noble and learned Lord, Lord Howe, was cracking the whip with his policy. So we already have a situation where the money is out there. We want the money to go out and stimulate the economy. The Government are paying too much interest— about a quarter of it to the Bank of England, which makes no sense—but if they think slightly outside the box, they could improve the prospects for the economy.

I shall now get a little more down to earth. When I came to your Lordships’ House roughly 23 years ago, on 18 June 1991, my maiden speech was on manufacturing and why there was no future in manufacturing at all. We ought to stop getting obsessed about manufacturing because it diverts attention from the economy. In his brilliant maiden speech, the noble Lord, Lord Bamford, pointed out that manufacturing is very valuable. Of course it is very valuable—there is no doubt about that—but it does not need to be expanded. Over the past 23 years since I made that speech, manufacturing has shrunk and the economy has become more prosperous.

The point is that in manufacturing we have concentrated on genuinely high-value-added jobs in high tech, which is the only place where we can survive in international competitive business. The UK economy cannot survive in labour-intensive manufacturing. You cannot create millions of jobs in UK manufacturing—there are people in China, Indonesia and Malaysia who will beat us at that—so we have to concentrate our manufacturing on high-value-added, high-tech products. It is a very competitive business which requires as a minimum, as noble Lords have said, a lot of research on the triple helix and so on. A good higher education sector is also required. Along with that, we have to be quite ruthless about eliminating non-competitive business and not subsidising it.

If we are to have a prosperous economy, we need a small highly valuable manufacturing sector whose contribution to national income in percentage terms is way above its contribution to employment in percentage terms—that is, we have to have the most productive people going into manufacturing. That is why this song and dance about apprenticeships surprises me. In around the 1880s, there were government reports that we were falling behind Germany. It was asked why the Germans were ahead of us. It was said that they had apprenticeships and we did not. Some 130 years later, we are still talking about apprenticeships. Nobody needs 2 million apprentices—certainly not in manufacturing.

Talking about apprentices produces a false concreteness —it looks as though people are doing something useful and highly skilled. We need a lot of people in healthcare, for example. Our real labour needs are going to be in what we might call the soft industries: healthcare, education and the arts. The arts are a very valuable and profitable part of the economy and one in which we have a comparative advantage. Therefore, when thinking about apprenticeships or the economy, we should not think too much about expanding manufacturing. Economic prosperity depends on doing what we do best, and very often that is not the concrete but the abstract. Britain is very good at abstract things—one has only to think of Shakespeare. We can sell good, expertly made products abroad. Let us stick to that and not get into metal bashing.