Economy: Spring Statement

Lord Hodgson of Astley Abbotts Excerpts

Thursday 15th March 2018 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the Members of the Bishops’ Bench in your Lordships’ House have a long record of making distinguished and distinctive contributions to our debates, and I think the speech we have just heard continues that tradition—not that I would have expected anything else from the right reverend Prelate, given his far-reaching personal, academic and pastoral background. This includes not just the wide-ranging work in the United Kingdom which he described; I am told on the highest authority that he is an exceptionally accurate sprinkler of holy water. He has a son and family living in Australia, which gives him a world dimension, and he himself studied in California, where he received a master’s degree in sacred theology. I hope I am not being irreverent, but I am surprised there are degrees in theology that are not sacred. Whatever the rights and wrongs of that, he has made a powerful contribution to our debate this afternoon, and I am sure that I speak for the whole House when I say that we look forward to hearing from him again soon.

As I turn to my own remarks, I need to draw the House’s attention to my entry in the register—my chairmanship of several companies. I also ought to remind the House that I am currently chairman of a Select Committee of your Lordships’ House looking into citizenship and civic engagement. It is not directly relevant to our debate today but some of the evidence we have received has informed the background to my remarks.

My noble friend on the Front Bench has taken a certain amount of incoming fire so I begin by offering congratulations to the Government on their overall economic performance. I do so, first, as regards the continuing reduction in the Government’s borrowing requirement, which at £37.7 billion in the 10 months to the end of January is the lowest since 2008. Secondly, they have created economic conditions where tax receipts continue to outperform expectations so that the next financial year looks as though we will run, excluding capital investment, an overall surplus.

However, we live in uncertain times for reasons that we have been debating long into the night and will continue to debate long into the night, so there is still work to be done with borrowings at over £40 billion and the net debt at £1.73 trillion—84.1% of our GDP. I support the Chancellor in his determination to continue a responsible fiscal policy. I have to say to the party opposite that I fear for our future if Mr Corbyn has a chance to plant his magic money tree, as I think that would undo all the hard work done in the past few years.

In my remaining remarks, I want to look to the future and for my noble friend to comment on progress in three particular areas. The first is what the Government call emerging tech, and particularly the area of artificial intelligence and robotics. Over the next 10 to 15 years AI and robotics will transform the way we live and the way we work. In 2015, 5.5 million consumer robots were sold and next year 40 million are expected. They will free us, as that tide comes along, from doing many tasks that are dull, dangerous and dirty. It will be a huge important worldwide wave of change and it is important that this country is in the vanguard of it. Perhaps my noble friend could update the House on the Treasury’s perspective on progress in that regard.

However, as is always the case, there is a downside. To date, robotics have tended to affect employment in manufacturing—the manufacture of things. The next wave will deal with services, and this country is very service-oriented. Financial services, insurance, auditors and paralegals will find that a large number of their jobs no longer exist in the new world. At a further lower level, humdrum jobs will disappear. Commentators say, “Yes, yes, yes”, but in agriculture, for example, where there is expected to be quite considerable employment, albeit lowly paid, we can see from YouTube that a machine in California is now starting to pick strawberries mechanically, and in Lincolnshire a machine can pick cabbages and lettuces. They are not commercial yet but they will become so. Therefore, the idea that there is a large level of unemployment in these areas in the future is mistaken.

The implications for our society are for many fewer jobs overall. This will be the first industrial revolution that destroys more jobs than it creates, and it will be a society that looks like an unbalanced hourglass in terms of work prospects: a small blob at the top for those who are successful, a long thin middle and another blob at the bottom for those able to do the humdrum jobs that cannot be mechanised. All this will cause stresses and strains on our social cohesion. It will be emphasised because, over the next 25 years, we will see an ineluctable drift in wealth from the West to the East. The rising economic powers of the next 25 years will be India, China, and south-east Asia. Whether we like it or not, we will be in a relatively slower part of the stream. That, too, will emphasise problems that we might have in this country. That is my first point.

My second point is how to do more to make sure that our existing resources—our people here—are better equipped to deal with these very challenging conditions. Of course, productivity has been our Achilles heel for as long as I can remember. There are things we can do to improve productivity. The first is training, and I welcome my noble friend’s emphasis in his opening remarks on the Government’s commitment to training—the apprenticeships programme and the T-training. It has always seemed to me that a well-trained technician is likely to have a more satisfactory, well-paid and fulfilling job than someone with a 2.2 in media studies.

There is a second challenge, which is about trying to get people to work, and it is a question of infrastructure. One of the companies I chair is in central Manchester. It is a small company, employing about 40 or 50 people. We take on about four or five every year. We can recruit people from Manchester but we find it extremely hard to recruit from Bolton, Blackburn and—dare I say it in the presence of the noble Lord, Lord Davies?—Oldham, because the travel-to-work times from those towns to Manchester are very high. People are not prepared to commit to a job that requires them to spend too much time travelling to work every day. For another company in Runcorn which I chair, the situation is even worse.

If my noble friend asks his officials to get out the social mobility report of November 2017 and turn to page 75, they will see that planned spending per head on transport in London is £1,943, but in the north-west it is £680—one-third—and it is even less in Yorkshire and Humberside. The Treasury needs to think about the generality and the particularity if we want to make serious inroads on the imbalance between London and the south-east and the rest of the country.

The third element of this is getting UK employers to understand the importance of recruiting members of the settled population. When I say “settled population”, I mean settled—it is not another word for white. I do not mind about racial background, religion or anything, just the settled population. Noble Lords will have read, as I have, hundreds of articles saying that we are crying out for engineers, but I meet young engineers—young men and women who have a 2.1 in engineering—who find it hard to get a job. When you ask why, they say it is because employers say that they have no experience. Of course, you cannot get experience without a job and you cannot get a job without experience, so they are hooked into this very difficult situation. It can be easier to hire someone from overseas—it is probably no more expensive; it is perhaps cheaper—who will have two or three years of practical experience thrown in. This issue of crowding out needs to be addressed. If overseas recruitment is the default option—for employers it is economic and rational to do that because they get better-quality employees for a lower price—it will have implications for our society.

This takes me to my last point. Against this challenging background, we need to consider the fact that our population continues to increase very fast. Some people have said, “With Brexit, that’s all over”. Well, it is down but it is still very high. Every single day in the year to 31 December 2017, on average, the population of this country went up by 1,196 people. That is a large village or a small town every week. Approximately 500 was natural increase—that is to say, the excess of births over deaths—with 500 from outside the EU and 250 from inside the EU, balanced by about 150 people from Britain going to live overseas. The ONS projection is that we will have another 7 million people here over the next 25 years. To house them, we will need three cities the size of Manchester—with all the ancillary services that go with that.

We have these three trends: a move to the East, resulting in our living standards growing, at best, more slowly; an AI robotics revolution, which will reduce—potentially dramatically—employment opportunities; and a rapidly increasing population. In my view, though I hope I am wrong, this all suggests challenges to our social cohesion and our community life. I say to my noble friend that only the Treasury is in the position to assess the impact of these trends. Every other department is bound by its silo mentality, its own bit of turf. When he comes to wind up, can he say whether these sorts of long-term strategic issues even register in the Treasury? What sort of intellectual horsepower is being deployed to them? If he is not able to say that this afternoon, perhaps he could write to all of us who have participated in the debate to explain how the Treasury sees these trends working out or, if it is the case, why it disagrees with them.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I join in the welcome to the right reverend Prelate the Bishop of Lincoln. He is obviously supported by the noble Lord, Lord Cormack, and my noble friend Lord Taverne, but when he mentioned that the doorkeepers largely hail from Lincoln, that is when I knew we had a real power to be reckoned with in this House. We know where genuine authority lies. We very much appreciate his speech. He focused very much on a divided society, and that issue was picked up by others in this debate—the noble Lord, Lord O’Neill, was talking about the north/south divide, although the right reverend Prelate the Bishop of Lincoln reminded us that it is not just geographic, as those who struggle can very well be located in the south as well. This is timely in the context of this particular Statement.

I join with others—the noble Lord, Lord O’Neill, seemed to have had the same reaction to the trailers that came ahead of the Spring Statement—in saying that I had thought we were going to get some really super growth figures. Frankly, that should not have been so unexpected, because if we look at the markets that we export to, they were on steroids in 2017: the euro area grew at 2.5% and the US at 2.3%. I was genuinely quite shocked when the Chancellor announced that growth in 2017 had slowed from 1.9% in 2016 down to 1.7%—not quite as bad as expected in the autumn, but in light of this great global growth pretty difficult to explain. A falling performance when the going is good is really pretty extraordinary, quite frankly. But the forecasts for the future are worse. The noble Lord, Lord Skidelsky, described a stagnant and becalmed economy. The OBR is forecasting growth for the UK in 2018 at 1.5% and it drops after that, while in contrast the OECD, which released its numbers on the same day as the Spring Statement, forecast growth in 2018 as 2.9% for the US and 2.3% for the euro area.

I recognise that we have a productivity problem and an investment problem, but I disagree with the noble Lord, Lord Skidelsky, in one area. He basically suggested that the fundamental problems we have are not in any way related to Brexit. But I join with others—we heard from the noble Lords, Lord Livermore and Lord Higgins—in saying that, if it were not for Brexit, the capacity to draw investment into the UK would enable us certainly to improve growth and productivity. Brexit has now become that kind of barrier. We have seen it in the numbers—particularly foreign investment numbers in the course of this year. To me that is very significant. If I may pick up the point that the noble Lords, Lord Hodgson and Lord Freeman, and others made, we are at a point where we are entering a fourth industrial revolution, where everything will change, thanks to AI and robotics. That makes it the most crucial time to draw in that kind of investment. If you do not ride the change, you are left behind. The last thing we should be doing for our young people—in the Box or otherwise—is to let ourselves get left behind at this absolutely critical point in time. So I am exceedingly concerned.

If we turn more broadly and look at our population at large—you would not have known it from the Chancellor’s words—people are feeling pain. The day before the Spring Statement, we got the February numbers for UK consumer spending. Consumer spending fell in February by 1.1% year on year, declining for the ninth time in 10 months. Wages are stagnant—we are all aware of that—and inflation is running at over 3%, and it is making life for ordinary people exceedingly difficult. Frankly, a lot of that sits at the door of Brexit. Yes, it is part of a longer-term pattern of modest economic growth, but the inflation rates that we have seen really are Brexit in origin. The impact on people’s lives is very significant.

The right reverend Prelate the Bishop of Portsmouth, the noble Viscount, Lord Chandos, and others talked about the general suffering of the population at large, but the Chancellor did not really address public spending pressures very much in his Statement. There was a bit of a sense of light at the end of the tunnel and maybe we would be able to lift our foot off the austerity pedal a little at some point in future, but it seems to me that is completely out of kilter with the reality that we are facing. I argue that the pressures to increase funding in the public sector have simply become unavoidable. Just last week, the NAO, in its report Financial Sustainability of Local Authorities 2018, warned that 66.2% of local councils with social care responsibilities have now eaten heavily into their reserves. Social care is struggling in many parts of the country. The NHS is not coping; indeed, routine operations were cancelled for a whole month this winter. Schools are asking parents for money; the noble Lord, Lord Young, talked about the struggles that his local primary has, and they are repeated nationwide. My noble friend Lord Taverne, the noble Viscount, Lord Chandos, and others talked about the welfare cuts that are still to bite. We simply cannot continue in this vein.

Even though the Chancellor now anticipates that day-to-day spending will come into balance in 2019, which is of course good news, it is very far from salvation. As the IFS said following the Chancellor’s speech, borrowing is only down to pre-crisis levels, at 2% of national income, but debt is twice its 2008 levels. Realistically, this is the time when we absolutely have to look at raising taxes. At the very least, we need to reverse the cuts since 2015 in corporation tax—which surely could have been left at 20%; I do not believe a penny below that has encouraged any company to put more money into any investment—and reverse the cuts in capital gains and inheritance tax, which would give us a bit of breathing space.

However, I argue that the NHS and social care are now such a funding challenge that they require a more radical solution. I very much regret that none of the many studies that the Chancellor announced this week included an assessment of a dedicated NHS and social care tax, which, frankly, looks like the only way to put these key services on a sound footing long term. Since a new structure takes time, my party is calling, as my noble friend Lord Taverne said, for a penny-in-the-pound increase on income tax to provide £6 billion this year to prevent another near-term crisis in the NHS and social care.

I also very much regret that the Government failed to consider giving local authorities the powers to become major builders of affordable and social homes. The Government are making some movement on housing but not at the scale required, certainly to deliver social and affordable housing, and again those pressures are becoming completely unsustainable. I believe it was the noble Viscount, Lord Chandos, who talked about the homeless problem that we have; we have all seen it develop. However, that is only a minor symptom of a much broader and deeper problem that has to be tackled. We know that, given those kinds of powers and the ability to go out and borrow, local authorities can deliver the kind of housing that we need because they have done so in the past. This is the time to take off the ideological cap, recognise that the housing market is fundamentally broken and empower local authorities to deliver the kinds of houses that we definitely need.

I join others in being glad that the Chancellor is looking once again at the apprenticeship levy. That is a really messed-up piece of policy, and I hope very much that we can read in the Chancellor’s words that he is going to sort out the nonsense. For small companies, and I talk to many of them, it has simply turned into a tax, not a mechanism to deliver either training or apprenticeships. In the same way, I join others in being glad that we are getting another look at late payments, but this time could we have a solution rather than another report?

I support the Government’s decision to find a more effective way to tax digital companies, perhaps on their revenues rather than their profits. It is an outrage to see large, successful companies essentially paying very little tax. However, I think the Chancellor’s proposal is too narrow. It really should be almost just a first step. Big brand companies such as Starbucks can outwit the tax system just as well as Google. A fundamental part of the problem is that we do not know how to deal with the value of things like brands and intellectual property, but that is the shape of so many companies of the future. We have to crack that problem now, or we will find ourselves without any effective tax base. I hope that the accounting profession will get wrapped into this, frankly. In the scandal of the collapse of Carillion, a big part was the completely inadequate pricing of the value of contracts and good will by the accounting firms, so that the company looked artificially healthy when it was crumbling. Others should investigate who should have known what and when, but it is all part of the same issue.

I also regret that the Chancellor did not take this, as he was doing so many studies, as an opportunity to look at intergenerational fairness. We really have a very unbalanced tax system. Each working person is now supporting 1.7 people and the number is rapidly headed to 1.9 people. That is unsustainable. The noble Lord, Lord Hodgson, talked as if we have too many people, but the problem is the shape of our demographics. We are desperately short of working-age people. That is one of the reasons why cutting back on immigration is particularly ironic at this time.

[Lord Hodgson of Astley Abbotts]

The issue is also that we are not prepared to employ older people. Once you are past 55, you are on the scrap-heap. A great deal more could be done. We have done a lot of work in other areas of prejudice, but ageism is a prejudice we have yet to tackle.

[Baroness Kramer]

My Lords, around this House we can see many people who might mistakenly be classed as older but who can demonstrate that they have a great deal to contribute. We may want to do it in a different way, with part-time work and different opportunities. I agree that employers are unimaginative. But it does not get us away from the problem; if we hit a dependency ratio of 1.9, we are not functional as an economy. I cannot see any way, without rational immigration, of doing it.

We have a sluggish economy with fundamental problems of productivity and investment. We have public services that are often on the brink of break-down. We lack key pieces of infrastructure, especially affordable and social housing. Our national debt remains high. Ordinary people are feeling the pinch of stagnant wages and high inflation, and our young people are carrying an unwarranted burden. Frankly, there could not be a worse time for Brexit, with all the additional costs that it places on businesses and a future in which the economy and our businesses have less access to both markets and talent.

I join those around the House who take the view that, until we make up our minds that we need to be in the single market and the customs union, we frankly do not have much of a hope of seeing a substantial reversal in the kind of economic patterns that were embedded in the OBR report. I was as astonished as others that the Chancellor felt that he must be “Tiggerish”. It made me think that life in Cabinet must be pretty dreadful if, when you present a report like this on an OBR statement, you find yourself happy.