The Economy

Lord Haskel Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I add my tribute to Lord Peston, a friend and colleague for 25 years. He had a unique talent. When he addressed the House, he often delivered a lecture, much to our delight.

In opening, the Minister tried to reassure us on productivity, skills, infrastructure, the balance of payments and inward investment, but still, as my noble friends Lord Tunnicliffe and Lord Hain explained, the recovery from the financial crisis has been much slower than we would have liked or expected in spite of running budget deficits, cutting interest rates and expanding the money supply. I agree with what the Minister said about the referendum, but I wonder if the Government have been looking in the right places for the other solutions for our economy. Are we looking too narrowly? Is the cause of our disappointment not just economic but social?

Most of us here must have detected the rising social discontent with our economy and the way that business is being run. The recent Panama papers once more emphasised to the public how tax evasion and money laundering divert money away from schools, hospitals and public services. The Government’s reaction to the Panama papers is that this type of activity is damaging to the economy. I agree, but so must be the misbehaviour by some of our leading companies. Other noble Lords have spoken about the divisive, huge salaries paid out in spite of the concerns of shareholders and business representatives. Banks mislead consumers and pay huge fines, with little impact on those responsible for the policies—my noble friend Lord McFall told us all about that. Trusted car brands have falsified test results. A big chain of chemists has been shown to be ripping off the NHS while community pharmacies lose their government support. Microsoft and Google are in trouble with the EU Commission. Now there is BHS. I could go on.

There is another social concern: that our economy is unfair. We here are all for innovation and technological change, but obviously we have not convinced everyone else that these benefits will be evenly shared. They might be reflected in the high wages and better public services leading to a better standard of living for us all, but what they will do is add to the inequalities so graphically described by noble friend Lord Tunnicliffe. Yes, an increase in the living wage is designed to help address inequality, but now we know that very few will benefit. Instead of workers benefiting from increased productivity, working conditions will just become harsher.

So no wonder we hear that we are reaching the limits of the benefits of free trade, foreign investment and immigration. There are other voices, which the noble Lord, Lord Mawson, spoke about, often referred to as the “new millennials”, who are concerned about growth and the quality of life reflected on social media. We may or may not agree with those voices, but will the Minister agree with me that these social concerns must be having an impact on our economy, on growth and on development? If people are alienated from business, that must be damaging for the economy.

So what is to be done? Fortunately, there is an alternative. There is mounting evidence of what works. First, we must get away from the pressure to deliver short-term outcomes, which has led to a decline in long-term investment. Over the past few years, companies have been net savers in the economy. The result is that the returns to shareholders have been poor. The 20-year real return on UK equities is now the same as on government bonds, a situation that has not been seen since the 1920s and 1930s. This means that there has to be a purpose beyond shareholder returns.

The advantages of reducing the complexity of financial intermediation and simplifying the investment chain are well rehearsed. So are the benefits of longer-term horizons and of asset owners and fund managers being active stewards. To my knowledge, these ideas have been around for 20 years—they are not new—but over the years this kind of stewardship and corporate governance has gradually been shown to work. There are good examples, such as Bamfords, JLR, Admiral and the old employer of the noble Lord, Lord Price. Many tell us that. Indeed, the Parliamentary Commission on Banking Standards has called for that kind of management.

Here I must declare an interest as a supporter of Tomorrow’s Company, an organisation that has developed these ideas for many years. By happy coincidence, next month it will publish its paper about this clarity of purpose, about the values and about collaboration in business—the kind of thing that my noble friend Lord McFall spoke about with regard to banking. I hope the Minister will consider its work carefully because now more than ever, its time has come. It is time because studies show that only 37% of the population trust business, and our economy depends on it. It is time because that is one way of helping people in work deal with the uncertainties of the changing world of work. It is time because that is how we can deal with the concerns of the public at the direction in which business is going.

These values coincide with some of the Government’s own concerns. They certainly deliver value for money—the cost is minimal. Current low rates of interest must be the right time for long-term investment. The Prime Minister wants to reposition his Government as a force for social reform. Well, here is one way to do that. It is time for economic policy not only to deal with economics but also to bring investors, executives and boards together, with the Government, to make this social approach equally important to all the other things we are trying to do—the things that the Minister explained when he opened this debate. Economics alone will not do the job. We have to persuade companies to raise their social game, too.

By encouraging these values the Government will also help and encourage business to deal with other social pressures, such as: adapting to climate change; coping with the demands of sustainability; having to deal with antimicrobial resistance—the Minister knows about that; and reacting to the national populism which is becoming a feature of our politics. In addition, of course, there is the increasing need to be a good corporate citizen. Again, little of this is new; it is just that it is becoming a lot more relevant.

This debate is about the steps being taken to build a stronger economy. Many noble Lords have spoken about social steps. I think it is time for these principles and practices of corporate governance and business management to play their part in growing our economy.