Employment

Lord Monks Excerpts

Thursday 20th March 2014 Lords Chamber

[Lord Monks (Lab)]

My Lords, I add my thanks to the Minister for initiating this debate. He has every reason to be cheerful given the rise in employment that has taken place. It would be churlish not to welcome the fact that the British economy is in a better place than it has been over the past six years, and the rising employment rate is the best feature of that.

As the Chancellor recognised, there is a long way to go before we can say that we have a balanced and sustainable economy. I note that he was not quite as upbeat and positive as the noble Lord, Lord Bilimoria, about the prospects for the British economy. While I welcome the national fall in unemployment, it is not being felt in all areas of the country or all areas of the economy. In the north-west, my region of origin, the number of unemployed has risen by 22,000. That is the largest rise of all the regions in the country. As the Minister said, the figure that raises the greatest concern is the rate of long-term youth unemployment. For example, in south Warrington in the north-west, between May 2010 and January of this year, the number of unemployed young people increased sixfold. In Rossendale over the same period, seven times as many young people have been unable to find work. Further north, in Lancaster and Fleetwood, the number of unemployed young people has increased tenfold over that period.

The harsh facts are that fiscal austerity has slowed and weakened the recovery rather than led to it. Exactly the same thing has happened in the eurozone. Both of these are in contrast to the United States, which has bounced back more rapidly and powerfully than this side of the Atlantic.

Monetary looseness and quantitative easing has been a factor in the UK. It has helped the recovery, but it has also helped it to be rather unbalanced and, for that reason, fragile. One could say that the economy is still on life support while we have quantitative easing. We have been under the delusion, as the noble Lord, Lord Skidelsky, described it, that the policies which made the recession worse would be the same policies that made recovery possible. In fact, public investment is still down 35% from pre-crash levels. Resources still stand idle and must be mobilised in all parts of the country, not just in the relatively prosperous south-eastern corner.

That brings me to concern about the British economic model. Just over six months ago, it was said in the Economist that:

“The bones of Britain’s economy are rotten. Shoppers are consuming not because they earn more but because they can borrow more … Firms with cash … are hoarding rather than investing. New firms … find it hard to borrow: the banks will lend only against property. Britain still buys far more abroad than it sells, despite a weak currency”.

Things have moved on since then. They would not write the same thing today. However, I ask noble Lords to appreciate the fact that some of that is still very true.

The Chancellor recognises these structural weaknesses. He mentioned them in his speech on Tuesday. However, his prescriptions still fall well short of what is necessary to cure our problems. It would be so depressing to think that we are condemned to a future in which we might get a debt-fuelled property boom, particularly led again by the south-east, followed by another financial crisis, followed by another period of austerity. What can we do to avoid that? There are things being done in the banking system but it is important that this rebalancing of the British economy becomes a national priority.

Can we be bolder in this area? The noble Lord, Lord Heseltine, has certainly had a go and is very active in this field. With his report, No Stone Unturned, he pointed to lessons from our neighbouring countries on the eastern shores of the North Sea, including Germany, the Netherlands and the Nordic countries—lessons about decentralisation, skills and active public intervention to spur growth. These lessons need to be learnt here, along with other features of the more successful economies of our North Sea neighbours. These include: the equality of Scandinavia; the collaborative, long-term culture of Germany, with its voice for workers; the widespread, effective collective bargaining systems in all the countries that I mentioned on the other side of that sea; and the general excellence of their infrastructure, public services and welfare states. They did not follow the cult of deregulated labour markets being the route forward to prosperity, and they did not adopt the easy hire-and-fire policies that were largely pursued in the English-speaking world. Even in Germany, the Hartz reforms introduced by Gerhard Schroeder were, by our standards, rather modest and marginal.

Collective bargaining is a term that you do not often hear in this House and sounds quite quaint and historical to many here, although it is prevalent in most of our top companies, including those on the list that the noble Lord, Lord Bilimoria, mentioned as exemplars. It is still strong at a sectoral level in the countries I mentioned and has a major influence in pressing against inequality. After all, if you are the boss and you have influential unions, it becomes far harder for you and your colleagues to sustain a culture in which you tend to help yourself and give yourself the benefit of every doubt when it comes to sharing out the company’s income. If you have effective information and consultation arrangements, involving company councils and even workers on the board, then you strengthen the forces that seek a long-term perspective on company performance—not those who see companies as a bundle of assets to be traded in the City, where the hunger for deals and transaction commissions seems undiminished. That certainly runs counter to our need for a better-balanced, more sustainable economy. The approach of those North Sea economies has much assisted greater equality and better productivity as well as longer-term perspectives about the future of their economies.

I accept that there are many good things about labour market flexibility. When applied functionally it enables workers to respond flexibly, and we have seen some of that in companies through this recession, which has helped to keep employment levels up. Flexibility in skills is obviously important, too, and enables individuals and companies to flourish. In passing, I hope that the Government continue to support Unionlearn, the programme that has done a lot to promote a learning culture among the workforce in this country. It would be a false economy to cut it back. That is not the responsibility of the Minister’s department but is on the Government’s agenda.

Flexible working hours are clearly important for the future to employers and employees alike, but while labour market flexibility has good features it also has some much less good features, particularly where it benefits unscrupulous employers by letting them fire people without adequate consultation. It is a process that has been encouraged in recent months and years by the Government’s moves. It is therefore important to consider labour market flexibility in its different segments, and regulation sometimes produces better practice.

Perhaps the worst thing about labour market flexibility as it has been applied in the UK is the lamentable performance on productivity. Output per hour in Germany is 31% higher and in France it is 32% higher. These are pretty disastrous figures. If we are to keep up with other countries, never mind soar to become the economic leader that the Chancellor talked about on Tuesday, then productivity must become a national campaign. It must become something that we improve and we must all work together to achieve that.

The Chancellor was right to warn against complacency because things are getting better, but I believe that he is wrong not to reach for more ambitious plans—perhaps, for a start, applying some of the lessons that we can learn from the other side of the North Sea.