Economy

Lord Giddens Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Giddens (Lab)]

My Lords, we are struggling to recover from one of the greatest economic crises in modern history. Anyone who offers simple nostrums about how this can be achieved needs his or her head examined. The crisis is structural, not just cyclical, and a great deal of innovative thinking will be needed to get the world economy back on track.

I do not see where this innovative thinking is coming from at the moment, but the group of doctrines that has become known as “austerity” is certainly not it. I am not sure that current Keynesian doctrines can supply more than part of the answer either. The idea of austerity is intuitively attractive, and would even seem to comply with common sense: when in debt, cut back on spending. Yet what applies at the level of an individual or a household manifestly does not apply at the level of the economy. I always respect what the noble Lord, Lord Howell, has to say, but on this matter I fundamentally disagree with him. The principles of austerity have failed wherever they have been applied. Not only that, they have acted against the very outcomes they are supposed to achieve.

Although halting and beset with problems, the US has made the best recovery among the advanced economies, which is the result of dynamic policies of an activist central bank coupled with a range of large-scale government interventions. The $800 billion stimulus Bill introduced by the US Government increased GDP by two percentage points from late 2009 to 2011, avoiding a double-dip recession. The contributions the Bill made to helping the less well-off were very substantial. Some 5.3 million people were prevented from slipping below the poverty line—a very considerable accomplishment.

Progress that has been achieved in the UK is in spite of the austerity measures adopted or, to put it more accurately, because at certain points they were relaxed. Employment has held up well, but that is largely because of depressed conditions at the lower end of the labour market. GDP capita as of 2014 was fully 16% below what it would have been if trends before the crisis had continued.

Among the extraordinary features of the aftermath of the crisis, which have been referred to by my noble friend Lord Monks, is that private irresponsibility has become redefined as public debt, and that the poor are being held accountable for the fecklessness of the rich. The former Governor of the Bank of England, the noble Lord, Lord King, put this quite well:

“The price of this financial crisis is being borne by people who absolutely did not cause it”.

The huge further cuts planned to welfare will have damaging consequences for those working on low incomes, the unemployed, young people and the disabled. The raiding of Labour’s cupboard to provide a veneer of social justice will not stop this becoming a toxic mix. In the mean time, disparities of wealth and income between the top 1% and the rest continue to soar. The structural causes of the crisis are to date at best only partly addressed, and remain dangerous.

I have one major question for the Minister, who will forgive me for losing my voice through this speech. RBS is being sold back to the private sector. Does that mean that it is no longer too big to fail? I would like a yes or no answer to that question.

--- Later in debate ---

[The Commercial Secretary to the Treasury (Lord O’Neill of Gatley) (Con)]

My Lords, as the noble Baroness, Lady Kramer, suggested, yet again we have had a very interesting debate this afternoon. For myself, it is particularly helpful that it is on many topics very specifically close to my role as a Minister. As was pointed out by a number of noble Lords, it is the second debate on closely related matters that we have had in two days. Whether the greater participation of noble Lords present here today than the one two days ago is a sign of the growing appetite for such discussions or the hour at which the earlier one took place—or some sporting event of that particular evening, or what is about to follow this debate—I shall leave others to ponder.

I was somewhat unsure as to quite what the noble Lord, Lord Haskel, might have had in mind with his very specific reference in the title of the debate to,

“the British economy beyond austerity”.

Like others, I congratulate him on the content that he chose to focus on—on productivity. I heard the noble Lord describing what we are entering into as the age of productivity. Linked to the tone of what I have already said, I cannot resist the temptation to say that we must hope that the amount of discussion now taking place in this Chamber and the attention that we are giving the topic of productivity is itself a leading indicator of what may happen to productivity performance. I do not need to further remind the House that we had a specific discussion about productivity on Tuesday, and I encourage noble Lords, if they have time, to read the documents that are now available in the very likely event that I miss referring to all of those matters in my subsequent comments. I am conscious of the fact that our time is under intense pressure.

From what I have heard from noble Lords, there appears to be general recognition that some degree of deficit reduction and a focus on maintaining a lower level of debt has in the past been generally the right thing to do, even if not everybody signs up to exactly the same path. Coincidentally, I encourage noble Lords also to read, if they have the time, Chris Giles in today’s Financial Times. He has written a very topical piece linked to the comments made by many noble Lords about the ongoing performance of the fiscal accounts in view of policy and the economic recovery. In my judgment, the tone of that piece supports the general view that it has been correct and appropriate for fiscal policy to have been focused on deficit reduction. I was somewhat fearful before I listened to the noble Lord, Lord Haskel, that we would yet again end up having primarily a discussion about the appropriate stance of fiscal policy. While a number of noble Lords made some useful comments on that topic, the debate has been very rich and much broader.

Before I try to address the number of specific points raised and add some comments myself, I would also like to focus on the issue of austerity. Several noble Lords, notably my noble friends Lord Howell and Lord Selsdon, the noble Viscount, Lord Hanworth, the noble Lords, Lord Soley and Lord McFall, and the noble Baronesses, Lady Wall and Lady Kramer—I apologise if I have missed anyone out—tried to focus on the conceptual environment that we are in in the context of austerity. At the risk of sounding too much like I did in much of my previous life as an economist, it is important to remind noble Lords that, while our deficit is now less than half what it was at the peak of around 10% of GDP in 2010, and our debt to GDP ratio appears to be stabilising, it is at a very high level of 80% of GDP. In most standard economic textbooks, usually irrelevant of one’s political bias, it is generally expected and desirable to run fiscal surpluses in times of economic performance beyond what is generally regarded as the trend rate of economic growth. That is not least because it would mean that, for the inevitable moments when life becomes somewhat less favourable and economies turn down, there is an opportunity for fiscal policy to provide the additional help that one would hope would be there for monetary policy and other forms of intervention to try to ensure a recovery.

In that regard, let me highlight for noble Lords the fact that last year the UK economy grew by 3%, and I think I am right in saying that five of the past six consecutive quarters have experienced what would typically be regarded as above trend growth. Most independent estimates congregate around a figure of 2.4% of GDP in terms of our long-term trend, so I would encourage future discussions and debates about many of these topics to think about the stance of fiscal policy and the use of the word “austerity” in that context. That is because, as has been pointed out by a number of noble Lords and in the piece in the Financial Times that I referred to, it is not clear that the stance of fiscal policy either has stopped or is stopping the economy currently from growing above trend, and certainly there appears to be growing evidence, as the economy continues to expand, on whether the past stance, where fiscal policy was very definitively tightened, ultimately stopped the kind of recovery that we are now apparently enjoying.

But linked to the welcome introduction by the noble Lord, Lord Haskel, in my judgment it is important that the discussion should move on and focus on other things which are in themselves part of the productivity issue, as a number of noble Lords have already pointed out in welcome comments, but separately from the productivity issue are important in themselves to our economic future. I shall briefly summarise my thoughts on what are generally four areas: the performance of our external trade; investment; the so-called rebalancing of the economy; and, connecting back to the issue I shall start with, the topic of productivity. Before I do so, I must apologise because the sheer number of questions that were put in my direction means that of course I have no chance of answering them all, especially those that were particularly complicated, but I choose to answer two that I regard as being direct and simple.

The noble Lord, Lord Giddens, put to me a yes or no question on whether RBS is no longer too big to fail. I am going to be an economist and say that I will not give him a yes or no answer. What I will do is repeat what I think the Governor of the Bank of England has said, which is that the bank is now in a position where it can begin its return to the private sector. I think that that is what most observers, particularly those with expertise, have believed throughout the unfortunate years of the past is where it ultimately belongs.

[Lord Giddens]

I thank the Minister. The issue is really whether there is still an implicit public guarantee behind the bank.

[Lord O’Neill of Galley]

In view of the sensitivity surrounding this topic and the fact that there are to be further discussions, I do not intend to pursue it at length. I have given the short answer which I thought I should give. However, we can follow this up in a written format.

My noble friend Lady Wheatcroft put a very pointed question to me about Hinkley Point. I shall say two things. I along with many others am spending a considerable amount of my time on the said topic, and decisions will be made in due course on many important factors, including the issue of value.

In the remaining half of my speaking time, I shall turn to the four areas I have already mentioned which I believe are particularly important to the economy beyond austerity, the first of which is of course the issue of productivity. I do not want to overelaborate or spend too much time going yet again into the details of the productivity plan. I am grateful that a number of noble Lords made reference to it in the debate, albeit that some of those references were not as favourable as I would have hoped. The important point I want to emphasise is that, as I mentioned in the debate on Tuesday, a senior Treasury official has been appointed to lead a cross-departmental group holding regular meetings to ensure that what is announced in our implementation plan is being implemented. That senior official will report back to me, thus allowing me to get directly involved as and when the need arises. I should add that I have encouraged this official, as part of her reporting back, to keep challenging me and the Government on any areas which officials believe, from their objective point of view, are being neglected or not being given sufficient attention. They should not feel shy about suggesting that we might perhaps want to reconsider them. I will not reveal the name of the person to avoid them being bombarded with the wisdom of noble Lords.

The second area on which a number of noble Lords commented briefly is international trade, which is of course highly important to our economic future. It is in itself part of the productivity story, but it is of sufficient importance that we need to focus on it in and of itself. It is right to recognise that the previous Government had already put a renewed focus on exports. The further support and encouragement given to UKTI has resulted in a more than doubling of the number of businesses receiving direct help on an annual basis since 2010. However, how we perform as an exporting nation is only partially determined by what we can do ourselves. It is a reality that the biggest driver of a nation’s exports is the level of domestic demand in its export markets. Over recent weeks, our friends in the media have only too willingly highlighted with their seemingly never-ending gloom that there are considerable challenges on an ongoing basis in many parts of the world, and there is not a great deal that we can do to control those developments. However, what we can do is work harder in the specific areas we have highlighted and spend more time trying to ensure that our trade performance improves in those places where domestic demand is likely—none of us ever knows—to perform most strongly.

I apologise that I cannot recall the noble Lord who specifically mentioned it, but China was briefly touched on. I am sure that many Members of the House are aware that, the week after next, the Chancellor will be leading a group of senior businesspeople and a number of Ministers, myself included, on an economic and financial dialogue visit to China. Given my own past and my now ministerial hat, I think that it is a particularly important trip. I should like also to point out in the context of the current excitable discussions about what is going on in China that, even in the event of the Chinese economy slowing to growth of 5% a year instead of the remarkable levels it has enjoyed for the past 30-plus years—and which, I should add, was much less than is currently believed by the consensus—that growth would equate, before the end of this decade, to the equivalent of another United Kingdom economy being created. It is a hugely important opportunity for us.

I am sure that a number of noble Lords are excited about and looking forward to the visit from the leadership of India later this year. Right at this moment, the country’s economy appears to be one of the few in the world that might be growing more quickly than that of China. These are the places in which, using my ministerial position, I am encouraging many different parts of government to make sustained efforts to boost our trade performance.

Closely related to that, a third area of great importance is, of course, investment, and, in particular, related to the international trade picture, international investment into the UK. As has been noted by a number of noble Lords, the fact that we have significant investment coming into this country, despite our shared views of the considerable challenges from many parts of the world, should not be ignored. I find it quite intriguing analytically—I noted it in the context of the interesting comments of the noble Viscount, Lord Hanworth, on the level of the pound—that, if things are as bad as many of us focus on, why the pound seems to do so well relative to a number of other currencies. That is perhaps a discussion for another day. It is certainly a consequence of a considerable number of investors around the world wanting to invest in the UK, including investing in our infrastructure and benefiting from what they perceive to be reasonably stable and attractive economic policies, including our taxation policies. As can be seen in the Budget, and as I have discussed, there remains, and will continue to remain, considerable focus on ensuring that that environment remains friendly.

The fourth and final area that is crucial, in the spirit of the excitement that the noble Baroness, Lady Kramer, talked about and which reflects my own focus, is the rebalancing of the economy. I say this towards the end of a week when we have received—we will hear a lot more about this, I am sure, in the coming days and weeks—a considerable number of bids from different parts of the United Kingdom, not just England, for devolution deals so that local areas can have a greater say and control over their own economic affairs, including specific asks that, one would imagine, may do something to boost their productivity and that of the nation. I have spent a considerable amount of time in the past few weeks travelling around the country, particularly to the northern powerhouse area, ahead of these bids. The number of anecdotes I have heard are highly encouraging that there may be some signs, probably not yet evident in our data, that our economic performance is becoming more diverse.

I repeat something that I said on Tuesday night: in the context of the ongoing debate about the appropriate stance on fiscal policy and public spending, it was frequently suggested a number of years ago that some regions of the UK would be especially vulnerable because of their dependence on government spending and would therefore suffer particularly as a result of the fiscal policy. My travels around the country, particularly the north-east, have shown me—this is quite interesting and very encouraging—that the growth in private sector job creation has more than compensated for any loss of public sector jobs. It is one of the regions that has seen the biggest rise in employment relative to its base in the past few years, and long may this continue. It will remain an area of intense focus with regard to government policy.

In conclusion, we have had an excellent debate; in some ways it is a shame that it could not go on for longer. I congratulate the noble Lord, Lord Haskel, on securing the debate. We all want to see the country reaping the rewards of a strong economy, and we are all committed to having in place the right policies to achieve that. Fiscal responsibility will, however, need to continue. As has been recognised, rather than simply focusing on fiscal policy, it is appropriate for more attention to focus on trying to do the right thing in order to improve our productivity performance, which will enable all our citizens to enjoy greater wealth.