Economy: Growth

Lord Monks Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Monks]

My Lords, I am grateful to the noble Lord, Lord Lang, for mentioning the pensions issue which is a gathering storm for this country as private sector pensions reel under the present problems. Those problems are complicated for all the reasons that he gave and are intensified by the economic crisis.

Like others, I welcome the noble Lord, Lord Deighton, to his new hot seat. I hope that he enjoys it and that he proves to be as good a student as he was all those years ago in Cambridge. There are many good tutors around the Chamber.

I think we all recognise the difficulty of the situation that we are in. We all agree with the noble Lord, Lord Heseltine, that this is the worst crisis that this country has faced in modern times. I happen to be in the camp—unsurprisingly, perhaps—which believes that austerity leads to more austerity. While we are discussing economic history, I think that President Roosevelt has a better record than President Hoover when confronted with the problems of the time. I think that the chorus of calls for change and greater expansion, which are growing much more widely than on these Benches, are now reaching into the Government. I hope that they will be heeded quickly.

However, my main purpose is to address some of the longer-term problems of the UK economy which have contributed to our being in the mess that we are in. It is very important that when we get through the present problems we do not just slump back to a situation of business as usual. This country is not a basket case—I agree with Boris Johnson on that note of cheer—but it has some long-standing weaknesses which need addressing and which we have been able to put on one side at different times of our recent history. The weaknesses are well known and I will not labour them but the shrinkage of the manufacturing sector has not been fully compensated by the rise in the services sector, with the consequence of a widening balance of payments.

The noble Lord, Lord Forsyth, referred to the record of Mrs Thatcher’s Government but we should remember the costs of some of those changes on the supply side in terms of the action that was taken against trade unions. About 3 million jobs were lost in the manufacturing sector. A heavy price was paid for that in some of the old industrial areas and some of the political ramifications are still very much reverberating. Both the noble Lords, Lord Lang and Lord Forsyth, were on the front lines of the battle in Scotland. That battle still goes on, albeit in a different form. Social discord was very high and the costs of all that were borne to some extent—quite a large extent—by the fact that the North Sea oil revenues were flowing and the Exchequer was benefiting greatly from that.

We still have the problem of the shrinkage of the manufacturing sector. We have been consumers and borrowers rather than savers and investors. Too few of our companies think long term and we have a relatively low spend on innovation. Indeed, at present, investment in new machinery appears to be at a lower level than in Austria, Turkey or Mexico. R&D figures are better: the UK is fourth in the EU, but efforts are disproportionately concentrated on defence and pharmaceuticals.

Low productivity levels were referred to by the noble Lord, Lord Lang, and others as reflecting inadequate skills and low capital investment. Industrial relations are still poor in some places and communication at work also leaves a lot to be desired. We must face the fact that a high proportion of our economy—the commanding heights in some sectors—is in foreign ownership. This raises the question of why there are relatively few British entrepreneurs able or willing to take on some of these sectors. We also know that we have a systemic tendency for rewards for top executives to outstrip performance and those of other employees. This inequality can have a downward effect on growth and this is important for this debate, as well as for equality. We have a concentration on traditional markets. As the noble Lord, Lord Howell, said, we have an improving presence in China, India and Latin America but it is still relatively weak compared to our major European competitors. Behind it all, we have the imbalances in our economy between the relatively prosperous south-east and eastern regions and the rest of the UK.

So what can we do about this? We know it is very complicated but there are some glaring weaknesses that the complexities should not stop us from addressing. First, can we learn some lessons from Germany and put an obligation on employers, widely accepted there, to train, not just young people but others as well? Can we not use the public procurement process to encourage all contractors to reach the high standards of training achieved when contracts were awarded for the Olympics, in the human relations side of which huge project the noble Lord, Lord Deighton, was so successfully involved? Furthermore, we know that many in this House would favour deregulation of the labour market and we heard the Prime Minister talk about that in his Bloomberg speech just last week. Why is it that the other economies around the North Sea, if I can call them that, all have regulated labour markets? They did not follow the deregulation, easy hire-and-fire, route of the English-speaking world: collective bargaining is still strong at sectorial level, as are extensive information and consultation arrangements and worker representation in boardrooms. This style of corporate governance has greatly assisted the development of long-termism, a more equal spread of rewards and good economic and export performance.

We also need to look at management culture and education. The UK often boasts of its world-leading business schools and universities but they often seem to be a transmission belt to put people into the financial services sector. How can they be more like staff colleges for a new North Sea economy and impregnate the other areas of industry and services? The noble Lord, Lord Lang, also referred to taxation. At present, the tax system favours borrowing over savings, debt over equity, capital gains over income and tax breaks for the wealthy rather than help for the poorest. Those emphases need to be changed. Can we restore a requirement in major takeovers to examine the social implications of bids and make takeovers a little harder? Perhaps we could re-examine the scope for the state to take golden shares in key UK companies while we still have some of these left. Every time we devalue, as we are doing now, British companies become cheaper for people in stronger currency zones.

The national investment bank, an idea espoused by the noble Lord, Lord Skidelsky, is clearly a way of trying to produce a more patient and readily available source of capital for research, innovation and SMEs. I would also like to see, as proposed in the report of the noble Lord, Lord Heseltine, regional policy restored and those regions that are particularly hard hit, because they are dependent on the public sector, given some help with new dynamism and entrepreneurial flair which needs to be extended beyond the capital and its favoured environs. I do not expect answers to these questions today, though I am sure we will continue to debate them. I have one particular question: are the Government likely to respond to the report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth? That report got a good reception in the House and it is important that, with all the differences on display in this debate, we find things we can unite around. Many of the proposals in the report are very attractive to very many of us.