Queen’s Speech

Lord Flight Excerpts

Thursday 5th June 2014 Lords Chamber

[Lord Lea of Crondall]

It was Lehman Brothers what dug the hole, if we want to get to that level of sophisticated debate. Gordon Brown was the most courageous statesman in the world in stopping it being even worse than it was. The noble Baroness represents the flash boys in the City and so on as part of the ideal economy, but I would say that it is those people what created the crash. Unless there are any more questions I will proceed.

We had a 7.2% fall from the peak, as I think my noble friend Lord Adonis pointed out.

One party in the coalition Government was the party of Disraeli, who famously referred to one nation. We are losing a sense of one nation and I would like to hear a little more from the Benches opposite about whether they do not think that there is a deep, chronic problem now in talking about one nation. Of course, there are three or four dimensions of it. There is the regional dimension, which I will come to, and top-down, education and social class. We all know that you can measure all the interactions until the cows come home. However, it would be foolish to deny the absolutely extraordinary change in the degree of inequality in this country over the past few years. We have now gone back to before 1945. I am holding up a graph which normally hangs on my wall. It looks like we are climbing Mount Everest, having last seen a similar peak of this ratio before the Second World War. That is not conducive to one nation or to a healthy economy.

I want to talk a little about the structural problem that is reflected in the contrast between the two economies in the United Kingdom: the London economy and the non-London economy. All the figures for the non-London economy of the UK correlate to some extent and show that the London economy is nothing like that of the rest of the UK. A brilliantly argued and well researched report by Deutsche Bank Securities published last November reached the conclusion that,

“there was less correlation in growth patterns between London and the rest of the UK than between the different members of the eurozone”.

It is hard to believe that, but it is pertinent to another point that will immediately become obvious. What are the implications of this? How many people in this House, particularly those on the Benches opposite, which have one or two more Eurosceptics than there are on the Labour Benches, have argued that the economic growth patterns seen in the eurozone mean that it is not possible to have a single monetary policy or any sort of economic governance? Based on that criterion, what if I were to say that we cannot possibly govern the United Kingdom? Would it be said in this House that we cannot possibly govern the United Kingdom?

[Lord Flight (Con)]

I thank the noble Lord for giving way. Is not the crucial point that within the United Kingdom there are transfer payments worth at least £70 billion per annum from the more prosperous south and south-east to the less prosperous north, Scotland, Wales and Northern Ireland? The problem in the EU is that Germany is unwilling to make transfer payments to the less prosperous parts that are unable to compete with that country.

[Lord Lea of Crondall]

If that is the reason why the noble Lord does not agree with the eurozone, I would say that over recent months Angela Merkel and her friends over there have been ready to put their hands in their pockets to do what it takes. It is all to do with the single market and having a single currency. I think that this could be a diversion; I am just drawing attention to the fact that the United Kingdom is in the same position. The transfer payments that we need now are becoming a huge challenge, given the rates of return—unless you count what might be called the external economies such as HS2, which I strongly support.

I strongly support the infrastructure proposals for our roads, but I would say to the noble Baroness, Lady Kramer, that she should note that the graph detailing major road expenditures over both Governments has gone up and down even more dramatically than the Blackpool Pleasure Beach attraction to which the noble Lord, Lord McNally, earlier referred with such nostalgia. We cannot have sudden switches on and off for road expenditure—I was going to say something unparliamentary—with not much in other periods.

What are the policy consequences? Someone who sits in this House but is not with us today said something about getting on your bike. Getting on your bike is fine, of course, if you want to go and work in London. But we know that there is a terrible dilemma around the green belt, town and country planning, and more growth in London relative to anywhere else. I strongly support what the Government have said about HS2 tying up with the Northern Hub. Infrastructure plans, as well as other subventions in terms of training, the labour market and so on, have to be somewhat disproportionately higher than for what might be called a private rate of return. If you were a private enterprise running education in Bolton, you would have to deal with this on a broader basis. I would ask the Government to consider whether they appreciate the scale of transfers which have to be made, which must also come with a challenge to enterprise to respond.

One nation is receding from us—hence the malaise, insecurity, lack of full-time jobs and so on. Mr Miliband has been mentioned and I will refer to him. Only Mr Miliband has the analysis that will lead to the policy with which the next Labour Government will be able to make a significant improvement to these structural problems.

--- Later in debate ---

[Lord Flight]

My Lords, it was healthy to see that the gracious Speech put in big letters up front that the key objective was to get the economy growing. That must surely be in the interests of all people. I cannot help thinking that that is not a bad criterion against which to measure individual policies: are they going to be good or bad for economic growth? Perhaps if President Hollande had done that, he would have avoided causing the French economy so much damage.

I add my congratulations to the Chancellor on having got our economy back to decent growth. I well remember that not long ago the IMF was rapping us over the knuckles, saying that we had not got it right. In a sense, you cannot blame the Labour Party for offering criticism; it is its job to oppose. However, three years ago I predicted that growth in the UK would be 3% by the time of the 2015 election. At that time people thought that I was not being particularly sensible, but that is about what it will be. As has been pointed out, this has been achieved while inflation remains healthily under 2%.

In essence, the Chancellor has taught Hayek but mostly done Keynes by printing £180 billion of money and continuing to run a budgetary deficit of well over £100 billion. If that is not Keynes, I am not sure what is, but it is fair to say that that was needed after a 7% crash in the British economy, just as Keynes was needed and was successful in the 1930s. The issue is when you turn down the Keynesian gas and revert to more standard economic management.

I also particularly welcomed in the gracious Speech the incentives for shale gas exploitation, the new collective defined contributions pension schemes and the proposals for streamlining planning approvals. Two of my children and I have been involved in the planning process over the past year. It is a complete nightmare and extremely expensive, involving environmental this and planning that—all for fairly simple and straightforward things. It is blindingly obvious that the problem is lack of supply because of the extent to which our planning system has become so complicated.

I have only one reservation for the near term: I hope that the Bank of England does not leave it too late to start to nudge up interest rates, particularly given that the economy has returned to normal, because the obvious risk is that when rates are increased they will have to be put up by a greater quantum, which would have more of a shock effect on the economy at the time.

However, we are not adequately talking about two big issues. One is that, taken together, health spending and the totality of welfare expenditure are now running at around £350 billion per annum—close to half of all government spending. As Mrs Merkel said in a different way, that expenditure is growing much faster than tax revenues or the economy. It is simply not sustainable in the long term, and it is particularly in the areas of welfare spending and the unfunded costs of ageing that Governments are going to have to think again. If they do not, there will be major economic problems in the future.

This is also reflected by the fact that we currently have a structural deficit of around £100 billion per annum. Although some of that can be addressed—as much as possible, we hope by economic growth and rising tax revenues, I do not think it will all be dealt with thus. We have reached the stage of economic recovery where those issues need to be thought about in a little greater depth and the can cannot be kicked down the road.

The second issue is savings and productivity performance. We need a savings rate of around 10%; it is more like 3%. Productivity growth since 2005 has been virtually zero overall. Manufacturing productivity has grown reasonably, but in the service industry—unbelievably—it has declined. The two obviously interrelate, in part because savings equals investment: if we have low savings we are likely to get low investment. However, that is not the only cause. Low levels of saving have been a major cause of poor productivity growth for over a decade. One cannot but observe that this goes back to the introduction of tax credits around 2004. I remember when the Heath Government brought in similar proposals to subsidise employment with their negative income tax proposals. The then leadership of the Labour Party—I use their arguments from 2004-05—warned that, if we do subsidise employment, we run the risk of having excessive employment in areas that are not growing, of discouraging people from getting skilled up, and of damaging productivity growth, just as the Speenhamland system did in the early part of the 19th century. The whole equation of savings, productivity growth and tax credits needs to be looked at in a little more depth.

Since 1997, the savings rate has also been driven down by the destruction of what was the best pension system in Europe. That destruction has been caused partly by overburdening final salary schemes, partly by the 1997 tax rate and partly by continuous tinkering with the rules. I very much hope that the gracious Speech will mark much more constructive thinking by the Government about pensions and retirement saving. That is how we can practically get the savings rate back up and generate the funds we need for investment in this country.

Again, a by-product of the inadequate savings rate has been, as I think was pointed out by the noble Lord, Lord Adonis, a current account deficit that has now risen to over 5%. For nearly 20 years we have financed that by selling off companies and the family silver. I will not say that that is running out, but there may come a time when it will not be in the national interest to keep on selling assets to pay for current consumption.

I repeat that there has not been in economic policy an adequate focus on the two key areas of savings and productivity growth, but there are three good news territories that I will focus on which I see in the commercial bit of my life. One is a wonderful explosion in entrepreneurship and a new-technology industrial revolution that is going on. I have to admit that a lot of the latter is in London—I will come back to that point—but I do not believe that the figure of 4.5 million self-employed is a reflection on people not being able to get contractual work; I think that a lot of it is voluntary. Something like one-third of young people now want to be entrepreneurs. In my generation everyone wanted to be a civil servant or work for a large corporation. Now, people are much bolder and much more imaginative, and this country, more than any other, is really exploiting the new technology that is coming up. Therefore, I think that there is very good news for the future beneath the surface.

Secondly, I think that we should welcome and not resent the success of London. Jobs in London are reckoned to be 39% more productive than jobs in the rest of the UK. It has more people employed in highly skilled, knowledge-based industries than any capital anywhere in the world. At the end of the day, this is generating the tax revenues that will help stimulate other parts of the country. I find it disappointing when people talk almost in terms of being jealous of London’s success because it is not matched at present by parallel success in other parts of the country. Let us remember that in the 19th century Manchester and Birmingham were doing brilliantly and London was not doing so well. Therefore, things swing to and fro.

[Lord Lea of Crondall]

I do not recall anybody saying that they resented the success of London. We have two economies in the United Kingdom that are getting further and further apart, and it is going to be very hard not only in economic terms but in terms of social cohesion if that continues. Many people made that argument but I did not hear anybody say that they resented London’s success.

[Lord Flight]

If the noble Lords thinks about it, that is just what he has implied. Effectively, he is saying that if London were not so successful the UK would be more homogeneous and that would be better. I am saying that we should use London’s success to earn the money to help pay for new investment in other parts of the country and the transfer payments that are needed. That is what is actually happening. I think that we should take a positive view of London’s success and not a negative view because other parts of the country are not doing as well at present.

I close with my third area of good news. When I looked at the Government’s infrastructure plan back in about 1911—I am sorry, 2011; I am much older than I look—I asked the Financial Secretary to the Treasury when these things were going to happen but he could not give me an answer. I am delighted to hear today from my noble friend Lord Deighton about all that is now happening, and I congratulate him on having really got things going. The plans were there but we had all manner of burdens and hurdles to get over to make things happen. It is good news that they are now happening, as those infrastructure investments are badly needed. Therefore, I end on what I view as three very positive things for this economy.