Charter for Budget Responsibility

Mark Field Excerpts

Tuesday 24th January 2017 Commons Chamber

[Mr Hammond]

It is always a pleasure to be gently chided by my hon. Friend, who is of course absolutely right. That is the conundrum about Britain’s productivity. We have some of the most fantastically productive companies and businesses—indeed, some of the most productive cities—in the world, but we also have some of the poorest examples of productivity performance. The challenge before us is to work out how to spread across the economy the best practice in productivity that we see in our economy so that all regions, and all corners and sectors of our economy, can share in this productivity performance and thus deliver the higher real wages and living standards that that implies. This is the biggest challenge facing the UK economy, but one that successive Governments have failed to do anything effective about.

[Mark Field (Cities of London and Westminster) (Con)]

I am certainly not in the mode of wanting to chide my right hon. Friend for anything in particular, but it is worth putting the productivity issues into context. It is also the case, as it has been during his time in office, not just as Chancellor but since 2010, that our unemployment rate has been rather lower, and that may have been a factor in the poor productivity that the UK economy has had relative to many of our European partners. This Government—or perhaps more importantly, British businesses—have made keeping employment rates a higher priority than the urgent need for improvements to productivity to which he refers.

[Mr Hammond]

My right hon. Friend, who represents one of the most productive sub-regions in the entire European Union, is of course right. There is a perfectly respectable economic argument that, as participation in the labour force increases, bringing more marginally productive workers into the labour force, that may have a depressing effect on labour productivity overall. However, the employment participation rates in Germany and in the UK are not all that different. I do not think we can explain a 30% productivity performance gap by differences in levels of participation in the economy. Indeed, there is much debate among economists about the cause of this productivity gap, and the cause of the generally poor productivity performance of developed economies over the past few years.

We chose at autumn statement 2016 to invest an additional £23 billion through a national productivity investment fund, which aims to raise productivity, support job creation, and boost real wages and living standards. Every penny we spend from this fund will be used to boost economic infrastructure, research and development, and housing. It will bring total investment in these areas to £170 billion over the next five years. It means that gross public investment will be at least 4% of GDP for the rest of this Parliament—that is higher than in any period between 1993 and the great crash.

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[John McDonnell]

We would have invested from the beginning in our infrastructure and skills, so we would have grown the economy and would not have had to borrow £700 billion for failure, rather than for growth success. Because the focus of the Government was on chasing an unachievable surplus target, they did not use the borrowing wisely. The sound policy, as recommended by international organisations such as the International Monetary Fund and the OECD, and by the CBI and the TUC here in Britain, is to put the Government to work in supporting investment. Instead, over nearly seven wasted years, the Government have cut investment to the lowest level in a decade.

[Mark Field]

The right hon. Gentleman is right that we have borrowed a hell of a lot of money, probably too much, since 2010—£700 billion—but does that not give the lie to the idea that there has been grinding austerity? We have borrowed a huge amount of money and struck a balance in trying to maintain welfare. One of the most insidious forms of investment under the last Labour Administration was the public-private partnership and the private finance initiative, much of which we will be paying off for decades to come—a colossal amount of so-called investment that actually is just adding more to our ongoing debt.

[John McDonnell]

The right hon. Gentleman will recall my opposition to PFI and its failures, but let me be clear: to borrow for investment, to ensure that people have the skills and resources necessary to tackle the productivity crisis and thereby grow the economy and create the high skills and wages which mean that people can pay their taxes and fund our public services, is creditable; however, what we have seen over the last seven years is borrowing because of the failure of the Government’s economic policy.

In the past seven years, the Government have actually cut investment, and the consequences of insufficient investment are painfully clear. Austerity measures and low investment have fed directly into what the Governor of the Bank of England has called a “lost decade” for earnings. Productivity growth has stagnated, as even the Government’s own industrial strategy White Paper acknowledged. I share the Chancellor’s concerns: every hour worked in Britain now produces a third less than every hour worked in the US, Germany and France. We have been arguing that case at least since I became shadow Chancellor, but we had no acknowledgment of it from the Government until yesterday.

With that record of under-investment, it is no use those on the Government Benches talking about a post-Brexit Britain taking on the world. An economy with low productivity can compete only on the lowest common denominator, and that means, as has happened, slashing wages and salaries and hacking away at social protections, such as the NHS and pensions. This is the grim reality of the Conservative’s low-investment, low-productivity, low-wage economy, and it can easily get worse. For some on the Government Benches, an economy shorn of basic protections in the workplace, with rock-bottom wages and social spending provisions stripped to the barest minimum, would be a desirable goal. We have had a glimpse of that future in the Chancellor’s own threats to turn Britain into a tax haven. Even to hold out this prospect is to admit that the Government have no better plan than the steady management of decline.

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[John McDonnell]

What we now have in our economy is a scandal of bogus self-employment. A lot of the growth in self-employment has happened on that basis, and it includes the most exploitative aspects. The hon. Gentleman mentions inequality, so let us look at some of the figures. If we use an index other than the Gini coefficient, which does not take into account the real outstripping of the super-rich, such as the P90/P10 ratio—this looks at the 10th and 90th percentiles of income distribution—we find that inequality has risen every year over the past five years. Let us look at what has happened out there in individual companies. If we compare the average total pay of FTSE 100 chief executives with that of their employees in 2015, we find a ratio of 129:1; in the mid-1990s, it was no more than 45:1. That shows the grotesque levels of inequality that result from the economy that has been created over the past seven years.

Yesterday’s Green Paper seemed to recognise the failure of previous policy, and there has certainly been a change of rhetoric. The Prime Minister has suddenly been won over by the merits of an active industrial policy. The recognition that the six previous years have failed badly is welcome, but nowhere is it clear that the Government recognise the scale of the problem. The weaknesses and inequalities in our economy stem from decades of underinvestment, when decisions about what and where to invest have been taken by too few people at the top and to the benefit of that tiny handful. That leads to an economy in which the Government are planning for more than £5,000 of investment per head in London, compared with just £413 in the north-east of England. It is an economy in which a single London capital project receives more Government backing than the whole of Yorkshire, and in which the £500 million promised yesterday for the north of England is set against £18 billion of cuts from local authority budgets since 2010.

[Mark Field]

rose—

[John McDonnell]

I see that the right hon. Gentleman is ready to jump in again.

[Mark Field]

The shadow Chancellor will recognise that he should be doing the same as me by defending London’s honour to a certain extent. Surely he recognises that if the significant amounts coming into our capital city were not invested here, they would go to another global capital, so it is not a case of money coming to London rather than another part of the UK. It is also the case that many of the cranes in my constituency—and, indeed, those in his constituency near Heathrow—are engaged in infrastructure projects involving large-scale investment. Such projects are producing huge numbers of construction jobs and are contracting well beyond the capital city. A lot of investment goes on here in London, but it has a benefit well beyond the capital city—

[Madam Deputy Speaker (Natascha Engel)]

Order. I call John McDonnell.

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[George Kerevan]

That is not what rules are for. The rules should not change when the situation changes; the policy should change. The rules are there to protect our sustainability and the ability of the markets to feel confidence in the Government. Yes, of course Brexit produced an exogenous shock, the full force of which has yet to arrive in the British economy. And, yes, the Chancellor is preparing the ground for when the wave hits the economy, but the point is that that is a policy issue. Why should the rules change? The rules are there to protect sustainability. If they change every time the circumstances change, what is the point of having rules?

[Mark Field]

But surely the hon. Gentleman must recognise that the proof of the pudding will be in whether there is a sense of confidence drifting away from banks and corporates in relation to that shock. They recognise that Brexit is a major event, and we all recognise that its impact still lies some way ahead, but that impact means that it is quite legitimate not to be bound by rules that pertained 15 months ago in a rather different world from the one that we are going to have to experience in the months and years to come.

[George Kerevan]

I thank the right hon. Gentleman for illustrating clearly the point that I am trying to make. Conservative Members are saying that rules are a hostage to fortune. They are saying that the rules will change when the circumstances change and when they need to change them to get the result they want. What, therefore, is the point of having rules at all? The right hon. Gentleman confirms the point that the shadow Chancellor and I are putting forward, which is that rules are flexible politically, and that they are therefore not rules.

We can prove this by looking at this Government’s borrowing record. Between 2010, when this Government were elected, and 2015, the national debt rose by 50%. The latest forecast from the Office for Budget Responsibility suggests that between 2010 and the end of this Parliament, the national debt will have almost doubled. The Conservative Government cannot continue to blame that on the former Labour Government. This Government have doubled the national debt during their tenure of office. The Chancellor and his predecessor have got away with that because they keep coming to the House with rules and pretending that they are fiscally responsible, yet they have doubled the national debt.