Industrial Strategy

Lord Flight Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Flight (Con)]

My Lords, I very much agreed with what the noble Lords, Lord Griffiths and Lord Bhattacharyya, had to say. I had reservations that yet again we were going to see fine words but whether they would turn out to deliver the goods was another matter, but I am comfortable to support such a national effort, as has just been referred to. It is a much better framework than the previous frameworks. At a tangent, I also point to the productivity leadership group convened by Sir Charlie Mayfield, chairman of John Lewis, to provide help and advice on implementing productivity improvement, particularly in the retail sector, which I will come to. That sort of organisation is healthy and sometimes has the ability to achieve things which Governments cannot achieve.

Of the government activities, I greatly welcome the transformation sector deal for life sciences, with 25 organisations taking over an important part of our economy, as the noble Lord, Lord Kakkar, pointed out. I too make the observation that it was a tragedy that the technical schools envisaged in the Butler Act never really flourished but I would point out their brave, continuing supporter in the form of my noble friend Lord Baker, who has now put in university technical colleges, which in the main are doing extremely well in producing the skills that we need and do not necessarily have.

This debate, to my mind, is essentially about our productivity and I would like to focus on five practical issues which, in aggregate, point us to why our productivity is probably understated in comparison with other economies. The first point is that if you subsidise pay, which is what tax credits do, you are bound to affect productivity. If labour is cheap and subsidised it encourages overemployment and the use of labour, rather than capital investment. That is the very opposite of France, where no firm wants to take on more labour than it can possibly avoid doing because it is so difficult to get rid of it; in the UK, we have had the reverse. Socially, that was a good thing following the financial crisis but we have gone beyond a time when it is positive. I note that the noble Lord, Lord Darling, has effectively made the same comment.

The second point has been touched on by a number of noble Lords today but not, I think, made specifically: one of our real problems has been an inadequate savings rate for 50 years and more. In the Keynesian sense, savings and investment must equal each other and inadequate saving has underpinned inadequate investment, very much in the way that has been referred to.

My third point is about the rather interesting study by Mark Price—now my noble friend Lord Price—on the importance of happiness in work and its effect on productivity and output. His measurements showed that the most satisfactory sectors were those of fast-moving consumer goods, hospitality and entertainment, while the least happy sectors were construction, transport, very much the public sector, engineering and architecture. The happiest people were the group aged 65-plus and the least happy those aged 19 to 24. It was interesting to read that John Lewis was established very much on the basis of that being important to the creation of an efficient business, and on the huge importance of employee ownership. I have always believed in that very much: when I built the Guinness Flight business, it was based on employee ownership.

John Lewis is to be a leader in addressing how to improve productivity in the retail sector—one of the sectors that has made the figures look so disappointing. There are over 3 million people employed in the retail sector. Where we have been in advance of other economies is in moving to online, which now represents over 20% of retail sales. Some extremely useful work has been done here by Gary Channon, the CEO of the fund managers Phoenix Asset Management. What has really been happening is that when we go to shops, if we buy things and take them home, that taking home is not in any way included in GDP figures. However, when you buy online, a whole range of activities—storing, packing up, delivering to the house in question—add considerable costs.

The figures look something like this: there should have been a reduction of towards 1 million people in traditional retailing to match the more than 20% that has gone to online delivery but it has not happened. However, online has created some 300,000 jobs and the combination of the two has, in the short term, hit productivity pretty seriously. That is why it is extremely important that our leading retailer, the John Lewis business, is focusing on this and making its own changes. A McKinsey report suggests that there could be 900,000 fewer jobs in retailing by 2020 and sees 53% of retail sales having scope for automation. John Lewis has also invested £500 million in its Magna Park national distribution centre. It has taken on 500 apprentices this year and looks to take a huge quantity of them by 2020. If you like, it is the lead business in how to improve and sort out the productivity of retailing in the greatly changing climate of having much more online business.

I also point, in parallel, to the financial services sector. I declare my interest in terms of my ongoing involvements in that sector. Since the credit crunch 10 years ago output has been stagnant and as a result the sector, which has been the biggest industry in the country, has fallen from having 9% of GDP to 7%. You would have thought that would result in a significant reduction in the number of people employed in the sector but not at all; rather, if anything, the numbers have increased with the enormous volume of new regulation and compliance that the industry has to face. Quite a lot of this, such as MiFID II, strikes me as contributing little or nothing and as extremely unhelpful to certain sectors, particularly private client fund management. Anyway, the net result of all that has been a big drop in financial services’ profitability.

The practical point I am making is that on a five-year view of these specific little areas, which are capable of being addressed relatively quickly, more recovery in productivity is likely to come from sorting out such areas than the big picture of the Government’s plan. But to go back to the beginning, they have my support. I had concerns initially that the plan reminded me of the Wilson Government’s national plan, but that is unfair for the reasons put forward by a number of excellent speakers today.

This territory needs cross-party national commitment. There is a lot going on in this country which is extremely good news, such as leading in tech sectors and the huge volume of younger people who are entrepreneurial and starting new businesses. But, for the reasons that my noble friend Lord Prior pointed out, it is absolutely essential that we improve our productivity and living standards if we want an open, democratic system to continue.