Economy: Growth

Lord Shipley Excerpts

Thursday 21st June 2012 Lords Chamber

[Lord Shipley]

My Lords, I, too, thank my noble friend Lady Kramer for initiating this debate. I think it is true that the UK is weathering the debt crisis better than many countries, and we seem to understand why we have so much debt and what needs to be done to reduce it. Our problem is that, in addressing the public deficit and personal debt, growth has stalled. As the noble Lord, Lord Haskel, pointed out, confidence is poor, so people hold cash to protect themselves against instability and uncertainty. As they do that, banks repair balance sheets, businesses hold cash amounting to some £700 billion and individuals reduce their borrowing and try to save more. That is now leading to too much cash doing too little and simply earning low returns in interest. Meanwhile, unemployment is high—particularly youth unemployment—borrowing can be hard even for good business proposals and we continue to build too few homes.

As my noble friend Lady Kramer pointed out, the Government have given leadership through their growth initiatives and in their recent boost last week to high-street lending. We all need to respond to restore confidence and thereby generate jobs. Can more of those with money to spare be persuaded to spend some of it on services, employing, for example, a tradesperson who may be having a tough time getting work? That could make a difference and prevent someone having to cease trading and ending up on state benefits. Can we deliver an urgent boost in housing? We are not building enough new homes; the construction industry has declined by more than 4% in the latest period. There is an acute shortage of most kinds of properties but particularly of affordable, social housing, as the number of people renting rises. I can see no alternative to a major government injection of cash to provide the necessary gap finance to get homes under construction. I hope that the Government will urgently consider addressing this issue because tackling it will drive growth and employment as well as build confidence and homes.

There is also an important point about governance in that I believe there is a direct relationship between local empowerment and local growth. In England, government offices and regional development agencies have disappeared to be replaced by local authorities and local enterprise partnerships. These new structures are bedding in and I am confident that they will build on the successes of the RDAs.

Crucial to this further success is tax-increment financing, which permits borrowing against future business rate income. I agree with the noble Baronesses, Lady Kramer and Lady Valentine, about the importance of tax-increment financing—TIF—in generating growth, because England's major urban areas are suffering from a lack of demand which impacts directly on national performance. Spending and borrowing are being driven down by low confidence, restricting business growth. The recent and welcome moves to increase credit need to be backed by further measures to stimulate demand. Access to borrowing needs to be matched by the ability and confidence to repay that borrowing.

Infrastructure investment creates jobs, confidence and a high-ratio return. With low availability of public finance, TIF is widely recognised as a critical tool in delivering such investment and stimulus. Although the Government have created the means for TIF to operate through the Local Government Finance Bill, they have limited its potential effectiveness with their proposed resets, which make it difficult for local authorities to secure the level of return they need and will in turn reduce their ability to invest. The Government need to be more confident about local government’s ability to manage risk and make robust decisions.

By comparison, Scotland passed a Bill under devolved powers in December 2010 to allow six TIF schemes to run. Scotland looked first at which projects had real merit and then decided what to fund. Although some Scottish schemes are not yet fully resolved, that was a sound principle—to find the growth opportunities and then to allocate the funds. Some £500 million of public finance is now committed, attracting £2.5 billion from the private sector. I feel that England can learn from Scotland on this as it seems to have found a sensible way of proceeding. Many potential TIF proposals in England seek to rebalance the economy by stimulating developing industries such as biotech and high-tech manufacturing, resulting in long-term growth in high-productivity sectors which benefit the national economy. Longer-term pay-back periods may often be necessary to deliver that.

As I understand it, the borrowing by local authorities for enterprise zones announced a little while ago may also be treated more favourably than TIF and will not count against the public expenditure control framework, whereas TIF will. That implies a choice of accounting treatment, which I find confusing. I also wonder whether it would be welcomed by CIPFA.

The Association of British Chambers of Commerce, the British Property Federation, London First, the Centre for Cities, Core Cities, the GLA, the LGA, London Councils, the British Council of Shopping Centres and many individual private sector companies have all called for a much bolder approach to TIF because it is a mechanism that businesses think will help them grow. I very much hope that, during the passage of the Local Government Finance Bill, the Government will be able to respond to the potential that TIF projects offer.

That brings me to transport. I have never understood why the UK does not have a strategic transport plan. We seem to lack an airports plan, a road strategy and a plan for rail. That is not a new problem—it has been the case for too many years. The result is that too much infrastructure investment has been short term in its thinking, with a quick payback period in economic terms. It is not designed to rebalance the UK economy in the longer term. We should remember that private sector investment follows government decisions on infrastructure investment. Thus, HS2, which I support, will define for the private sector, because of its route, where firms should think of investing. It really matters what the Government say and where they think public investment should be placed.

To rebalance the UK economy requires a boldness and confidence about the long-term of transport infrastructure investment benefits to the economy; hence the need for dualling the A1 in Northumberland, improving rolling stock on regional rail services and delivering congestion relief through roads investment rather than having the Highways Agency simply put barriers in the way of development and growth by objecting to developments proposed on the grounds of future road capacity, as happens far too often.

Several parts of the UK suffer from low levels of transport infrastructure investment and their potential for growth is more limited as a result. The Government have the opportunity, two years in, to do something about that and to move from short-term decision-making to a clear long-term strategy which informs their investment and that of the private sector.