Economy: Growth

Lord Haskel Excerpts

Thursday 21st June 2012 Lords Chamber

[Lord Haskel]

My Lords, I agree with the noble Baroness, Lady Kramer, and my noble friend Lady Liddell that Aung San Suu Kyi is a hard act to follow. However, I would like to speak about something that she may recognise: namely, confidence. The noble Lord, Lord Bates, spoke about this in his very interesting remarks. The Government have missed out as regards confidence as the threat of a double recession and problems with the euro convinced them that there was no future—economic or political—in austerity alone. Sadly, the Government felt unable to adopt Labour’s five-point plan which comprised deferring or slowing down cutting the deficit, a temporary reduction in VAT and getting more young people into employment and training. In doing so the Government missed the fact that these actions would improve confidence by giving hope for the future. I do not agree with what the noble Baroness, Lady Sharp, said in that respect. It is the Government’s original policy of austerity alone that has contributed to this lack of confidence—a lack of confidence in the real economy, which is where the growth lies.

One reason for this failure is that we have a Government who think largely in terms of the financial sector. Money makes money. But you need the real economy, with goods and services that everyone who has been speaking in this debate has described, to create the money in the first place. This is where the growth will come from. This is where confidence is required. This is where we need to encourage and make positive sentiments, just as much as we need to in the financial markets. Yet this hardly features in the Government’s actions. What we have is a conventional pulling of financial levers—tight fiscal policy, loose monetary policy, and more or less quantitative easing. As the noble Lord, Lord Popat, said, this is not an ordinary crisis. I agree with him; and to help deal with it we all need to take every opportunity to build confidence to support and encourage the real economy.

I agree that Ministers talk about the march of the makers. They talk about the importance of competitiveness. Yes, the Plan for Growth laid out strategic aims, and the noble Baroness, Lady Kramer, told us about them; but when practical opportunities arise to create confidence, the Government do not take them. In fact, they do the opposite.

Let me give you examples that have been raised in your Lordships’ House. The noble Lord, Lord Clement-Jones, spoke about the Olympics. Twice the Government have been asked to take steps to relax the rules that the noble Lord complained about whereby British companies can use the Olympics as a shop window for their products. Twice the response has been what I can only call—with apologies to my noble and learned friends—a lawyer’s response, not a Minister’s response. Sure enough, only last week an article appeared in the Financial Times saying how this had been a blow to confidence because those companies felt they were,

“being left out in the cold”.

The noble Baroness, Lady Kramer, the noble Lord, Lord Popat, and others are urging companies to export. They are right. Indeed, we sit on a committee looking into this. There may be problems with the euro, but business in Europe goes on. Firms want to export to the EU, but are not sure how. Since January 2010, it has been a legal requirement for each member state to have a single point of contact in English on the internet for the purposes of opening up their markets. However, this is not working, and the matter has been raised in your Lordships’ House. It has been raised by the Federation of Small Businesses but nothing has happened. The result has been that people say, “Why should I bother?”. Confidence therefore ebbs away.

The Government’s most recent low-interest lending scheme is designed to spur the banks to new lending. I agree on this occasion with the noble Baroness, Lady Sharp, that clearly the money from quantitative easing and previous schemes is staying in the financial sector. It is not reaching the real economy. Project Merlin is not working and there is a great deal of wringing of hands about this. What do the Government do? Why, they offer more of the same with promises that this time it will work. The noble Baroness, Lady Valentine, described this. Is this going to build up confidence and encourage the real economy to produce the growth that we all so desperately need? It is beginning to look as if this is a Government who never lose an opportunity to miss an opportunity to give confidence to the real economy. These are examples that we have discussed in your Lordships’ House, but there are many more examples elsewhere.

As well as taking these opportunities to build confidence, how else can the Government temper austerity with encouragement and build confidence? Certainly, infrastructure projects, about which many noble Lords have spoken, must help. We are all aware of capacity restraints, shortages and things that need replacing. However, to build confidence, it is also essential to understand what is happening in British business and industry, and then we can build on our strengths.

There are very few large British-owned industrial companies any more, and they have been shedding workers. What we do have is a large number of clever, lively, innovative and enterprising companies that specialise in selling their products, ideas and services to narrow markets—markets which very often they themselves have discovered and shaped, as my noble friend Lord Bhattacharyya described, and which often turn out to be large because we live in an age of global markets. All the data show that these companies are accounting for a larger and larger share of our economy, and they have been the ones taking on people. For example, Formula 1 may be a very narrow area of activity but the spin-off businesses, such as those producing rain-sensing wipers or the sensors that tell the pit about the driver’s physiology, have become worldwide businesses. The growing trend of mass customisation exactly suits this kind of business. Additive manufacturing is becoming a destructive technology in the same way that music databases on the internet are now closing down record shops. We are good at this sort of thing.

Nowadays, these companies often work in groups and clusters, supporting each other, to reduce risk and share knowledge. Business has become much more permeable, especially in the digital world which the noble Lord, Lord Clement-Jones, described. If the Government want to bring about growth and competitiveness early, these are the kinds of businesses they have to support and encourage. The Government can create confidence by championing their products, services and way of business, not by neglecting them. Ministers do not have to take it from me. The Government are well aware of what is going on. Each government department has a scientific adviser who must know about these products and services. Foresight, the Government’s own horizon-scanning service, has and is studying all this and is well aware of what is going on, as is the Technology Strategy Board.

As my noble friend Lord Bhattacharyya explained, our skills and education system need radical improvement, as does our infrastructure and financial system. We have to get 1 million people aged under 24 back into work, and, yes, our industrial base is too narrow, but that takes time. That is for tomorrow and the next day, but today we have to show a sense of urgency and deal with this unusual crisis. We have to find growth by showing support and encouragement, and by building confidence where our strengths lie; then tomorrow we can deal with the rest.