Growth Strategy

Peter Grant Excerpts

Tuesday 21st January 2020 Westminster Hall

[John Redwood]

Yes, I am happy for there to be attractive reasons why people should go to the parts of the economy that have been less heavily invested in and that are less pressurised. However, with cars the issue is demand; there is not enough demand for the very good cars that the industry currently makes. The Government want to change the kind of cars that people buy, but it will take time for Britain, or anywhere else for that matter, to be able to produce the millions of electric cars that the Government want us to buy, at a price and to a specification that people like.

So, this is a top-down revolution and the public are not yet fully engaged in it in the way that the Government would like them to be. When polled, the public say that electric cars are a very good idea. However, when they are then asked, “Well, when are you buying your electric car?”, the answer is, “Well, not yet. Not me. I want a better subsidy on the car, I want a lower price, I want a higher range”—whatever it is.

There are still issues about engaging the public, which is why we are getting this industrial dislocation. China has experienced exactly the same thing and one would have thought that China would have continuous growth in cars, because it is coming from a much lower level of car ownership and individual income. However, even in China car volume is down, because of the regulatory changes and the dislocation involved in going from traditional product to electric product.

In addition, the Minister and his colleagues should look at the issue of property. Property is a very important part of the UK economy. It is often an asset base for people to borrow against in order to develop their business, and it is often the main way in which individuals hold their personal wealth. By buying a house on a mortgage and gradually paying the mortgage off, property often becomes people’s principal asset, which gives them some wealth and financial stability.

However, we have a property market in the UK that has been damaged by the very high stamp duties that were introduced under the previous Government, and the Government should look at that issue very carefully. I do not think that the Government are even maximising the revenues from stamp duties, and it might not be a bad idea for them to ask, “What are the rates that would maximise the revenues?” At the higher price levels in property, transactions have been very badly affected; indeed, they have been massively reduced by the very high rates at the top end of the market. So, the Treasury constantly has to revise down its forecasts of how much revenue it collects from stamp duty.

A more free-flowing property market would be a very good thing, because it would create all sorts of other work for people who are in the refurbishment and removals business, and above all it would allow people to fit their property needs more closely to the property that they have. A lot of potential switching in the market is being frustrated: some people have houses too big for them but they do not fancy paying the stamp duty on the trade-down property, and other people would like a bigger property, but the stamp duty would be just such a big addition to the higher price that they would have to pay for that property.

[Peter Grant (Glenrothes) (SNP)]

I congratulate the right hon. Gentleman on securing the first Westminster Hall debate of the new Session. Does he agree that there has been a major problem in the United Kingdom for many decades, which is that people—for one reason or another—have been encouraged to treat the house that they live in not as a place to live but as a speculative investment, on which they expect to make money? Also, does he accept that many people have been severely stung, because they thought that they would be able to stretch for a mortgage that they could not afford, in order to sell the house for more money in 10 years’ time? If the value of the house does not increase in 10 years’ time, they have a problem. That situation caused the crash in 2007-08 and it has caused a number of minor crashes since then. Does he also agree that more needs to be done to make sure that people who only have the money that they are investing in their house are protected against the possibility of losing their house and everything else when the market crashes?

[John Redwood]

Most people buy a house because they want somewhere to live that is theirs, and that they can then do up and change in the way they see fit, subject to planning. But yes, of course, it is also a way of holding wealth, and I repeat what I said: for many people it becomes their largest single asset. I do not think that is a bad thing. I do not think that people are treating their main property as a trading counter; it is where they wish to live, and they will only move when they want a different house, mainly for living purposes. People would only be able to buy property speculatively if the property was their second or third house, and not many people are in the fortunate position of having such wealth.

There is no absolute protection against house prices going down; they do from time to time, as the hon. Member for Glenrothes (Peter Grant) pointed out. However, if someone’s aim is to live in a house long term, and if they have taken out an affordable mortgage, temporary fluctuations in house prices are not life-threatening or wealth-threatening to any worrying extent, and they will just live through the period when house prices dip because there has been a recession, or whatever.

Fortunately, we do not seem to be looking at such a situation in the immediate future, and it is very important that we have a growth strategy, so that the slowdown in the economy that we have experienced in recent months is turned around quickly and does not become something worse, which could have negative consequences in the way that the hon. Gentleman talked about.

So my No.1 message to the Government is not to underestimate the damage that clumsy taxes can do, and they may even end up costing the Treasury, as stamp duty has done, because it is not collecting as much as it should. That is probably the case with vehicle excise duty as well, because of the volume impact on new cars, which relates to a whole series of factors; it does not just relate to the vehicle excise duty, but that was another complication in the situation.

As the Minister has this particular responsibility, I urge him to look again at IR35. We want a very flexible economy in which people can choose flexible employment, rather than have it forced on them. We have had a relatively flexible small business sector, but it is being damaged by the top-down imposition of the IR35 rules. I hear all sorts of stories from across the country of people having to stop their contracting business or losing contracts because the big companies that might employ them are worried they might get dragged into a retrospective tax increase in employer and employee national insurance. That is damaging the small contracting sector, and I urge the Government not to carry on doing that when we want to encourage more self-employment and allow self-employed people to go on to build bigger businesses.

One of the Office for National Statistics figures I saw recently, which I found fascinating, was that in London there are more than 1,500 businesses per 10,000 people, whereas in the lower income parts of the country there are half that number. There is a huge gap between the volume of enterprise in London, which is the richest part of the country in terms of average incomes, and much of the rest of the country, where incomes could be higher. It is not easy to break into why there are so many more businesses in London. In part, it is because people are better off and have more spending money—demand is important in setting up a business—but it is also to do with the general business environment and the concentration of people, talent, enterprise and spending power that we see in the capital. We need to do something similar in other parts of the country. Building more businesses is crucial, and IR35 is getting in the way of doing that.

Some 4.5 million people in the country who work for themselves do not have any employees, and they are afraid of taking on an extra employee because of the implications, whether for regulation, tax or otherwise, or because they think it will be too difficult to manage. We need to look at that step up in building a business, when someone goes from just working for themselves to having an employee or two. It is important that we make that step as easy as possible, because if another million self-employed people decided that they wanted a single employee, that would be transformational. That would obviously create a lot of extra demand in the labour market.

We need to look at taxes on employment and the complications of employment. Anything that the Government can do to reduce the tax on employment is a very good idea. We cannot collect tax revenue just by taxing things we do not like, but where we have a choice, it is better to tax things we do not like rather than things we do like. All parties in the House like the ideas of well-paid jobs and of more work, so we need to work away in Government to see how we can reduce the burden of taxes on work such as the apprentice levy, the national insurance levy on both the employee and the employer and other concealed taxes on work.

We also need to look at taxes on entrepreneurship. A larger population of people who have great ideas, who can change markets and who can persuade others that they have something people might want to buy is vital to the process of creating a more prosperous United Kingdom. We need to ensure that the offer on capital gains tax in particular is a fair one. People who have built a business over the years should not feel that they will be taxed again on it all, because they have been taxed on the activity in the business. Capital gains has to be a fair regime, and I urge the Government to keep the enterprise allowance arrangements so that entrepreneurs can keep a lot of the benefits from building their business.

It is said that our productivity performance in recent years has been disappointing and that that is a puzzle. I do not quite understand why it is a puzzle; it is exactly what we would expect. We have had a major reduction in North sea oil output. The way the figures are calculated means that it is one of the most productive sectors, because labour productivity is based on the amount of revenue or value-added generated by an individual, and an individual in the oil industry produces a huge amount of revenue due to the windfall element in the oil price. We had a very big squeeze on many of the activities in the City that were apparently profitable before 2008. Those activities flattered the productivity figures, but some of the profits turned out not to be genuine, and a lot of them have been squeezed out. Again, a high-earning, apparently highly productive part of the economy has gone through a big change, and we have lost that.

We have been a successful economy—this is a strength—in creating lots of new jobs, but a lot of them are relatively low paid so they do not score very well under productivity scoring. If we compare our productivity with that for continental countries with unemployment rates two or three times as high as ours, their productivity is higher, because people we are employing on low pay here would be unemployed there, and the unemployed do not count in the productivity figures—they are just ignored as if they do not exist.

--- Later in debate ---

[Peter Grant (Glenrothes) (SNP)]

I am pleased to begin the summing up in this debate, Mr Hollobone. I do not think my voice will last longer than 10 minutes, so there should be no concerns on that account.

I congratulate the right hon. Member for Wokingham (John Redwood) on having secured this debate, and the three Members who have already spoken—the hon. Members for Strangford (Jim Shannon), for Derby North (Amanda Solloway), and for Thirsk and Malton (Kevin Hollinrake). Maybe unsurprisingly, given the constituencies those Members represent, a lot of the focus in this debate has been on the serious imbalance in the economy of the United Kingdom, and indeed the economy of England, between London and the rest. I am interested to hear what the Minister has to say about finally addressing that issue, because if we look at England in isolation—I am sorry to say that isolation is where England is headed right now—the disconnect between the biggest city and the tens of millions who live in other parts of the country is quite stark. It is something that we do not see in successful economies across the rest of Europe, and it will hold back the wider economic potential of this nation.

I particularly congratulate the hon. Member for Derby North on her return to the House of Commons. I always thought ping-pong was what happened between the House of Lords and the House of Commons, but apparently Derby North has a game of ping-pong between the Conservative party and the Labour party. I do not know how long she will be able to stay this time, but I know that she will relish the challenge of staying a bit longer. I cannot, in all honesty, say that I wish her well in that, but I hope she will not take that too personally.

Interestingly, although we have heard a lot of ideas about how to improve economic growth, we have not stopped to think about what economic growth is, what it is for, and particularly who it is for. One of the reasons why I do not get too obsessed with fractions of a percentage up or down in economic growth is that it can mean a lot of different things depending on how we measure it, and it is quite possible to look as if we have strong economic growth when an awful lot of people are being left behind. Some 20 million or 30 million people in the United States of America live in poverty, so looking at the apparent success of the American economy tells us that growth in itself is not enough. If people get left behind—if we do not have inclusive growth—then our economic growth is not really delivering.

I am very pleased that, with the limited powers they have just now, the Scottish Government have prioritised inclusive growth in a lot of ways that do not immediately look as if they are about economic growth. An example is their success in getting more young people from deprived areas into university. Some 16.5% of first-time entrants into universities in Scotland come from the 20% most-deprived areas, which means that we are close to a position where young people growing up in those areas have just as much chance of going to a top-class university as people from other parts of Scotland. That is massive, especially as education is one of the best ways to improve a person’s life chances.

More importantly, even though university might not be the best thing for a lot of young people, they are the first people in their families to believe that university is for them. The attitude, “A university education isn’t for the likes of me because I’m from the wrong background”, is beginning to be dismantled. It is impossible to estimate the difference that that could make through time.

The First Minister has also supported improving the educational achievement, and therefore the life chances, of young people who have been in the care of local authorities at some point or who have come from families with severe problems. When I was a council leader, I looked at the stark difference in the educational attainment of those young people compared with others of a similar age. Their life chances were being affected almost before their lives had started.

Nicola Sturgeon’s commitment means that those young people now believe that they have every bit as much right to get into university, get a good job, start their own business and prosper in the world as anybody else. That is a major contributor to economic growth. Even if it does not add any percentage points to GDP growth, surely it is right to make sure that if we live in a prosperous society, and we want to call that society civilised, we measure its success not by how many millionaires there are but by how well the people at the lower end of the income scale are faring. There is a marked divergence in that area between the priorities of the Government in this Parliament and those of my Government in my national Parliament in Scotland.

I mentioned a number of features of inclusive economic growth in my contribution to the Queen’s Speech debate last night, which I will not repeat. In particular, I spoke about the marked contrast between the Scottish Government’s investment into my part of Fife to regenerate the local economy, and the UK Government’s lack of attention. For as long as we remain part of the United Kingdom, I will continue to call on the UK Government to step up to the plate and honour their responsibility in that regard.

We talk a lot about the exceptional economic strength of London and the south-east of England, although, as I have said, the imbalance between that and the other English regions will become a major problem, if it is not already. In terms of fundamental economic performance, however, if Scotland were a region of England, it would be the second or third best performing region of England on every economic indicator. Whether in the growth of inward investment, the growth of our exports or the growth of our economy generally, Scotland has a fundamentally strong economy. There is absolutely no doubt about that.

The single biggest threat to our economy is Brexit. Every analysis shows that, after Brexit, our economy will grow less than if we had stayed in the European Union. The Government’s response to the fact that all their analyses showed that Brexit was an economically bad idea was not to stop Brexit but to stop publishing the results of the economic analyses, because they were too embarrassing.

Today’s debate has been very interesting, but the definition of economic success that I have heard, and the direction that the proposals from down here for economic success would take people in, are not what people from my country want to take, so that will result in a significant divergence. I say to hon. Members who represent constituencies in what they call the north of England—although I am not sure Derby and Yorkshire are particularly far north—that one of the best things that could happen for the economy there would be to have our very own northern powerhouse in Scotland. I can see that coming in the not-too-distant future.

--- Later in debate ---

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to be able to speak for the Government in this first Westminster Hall debate of the new decade, as well as of the new parliamentary term. I congratulate my right hon. Friend the Member for Wokingham (John Redwood) for initiating this debate and for his very wide-ranging and thoughtful speech. I am sure he will be as pleased as I am and as I know Members across the House will be that today’s economic news reinforces a picture of an economy that is growing. The International Monetary Fund predicts that the UK is about to grow faster over the next few years than its major rivals in the eurozone and many of the G7—Germany, France, Italy and also Japan. PwC’s chief executive survey now rates UK attractiveness highly once again—I think we are the fourth most attractive global destination for location for businesses. That is very far from the narrative of isolation that we are hearing from the SNP and indicates the continuing international connectivity and scope for investment in our economy.

As my hon. Friend the Member for Derby North (Amanda Solloway) pointed out—I rejoice to see her back in this House—we are in the extraordinary position of having had 10 years of continuous annual economic growth. That is a remarkable achievement, and I am sure she will be as pleased as I am to see that the latest information is that the jobs market is strengthening, even from its already very strong current position. That economic growth is an amazing fact. If someone had said in the lee of the 2008 financial crisis that, beginning with the Conservative Government of 2010, there would be a full decade of uninterrupted annual economic growth, I do not think there is a person in this country, let alone this Chamber, who would not have bitten their arm off. That is something that we should all delight in, but that we should acknowledge has limitations that we need to try to overcome.

One of the things that was most interesting about my right hon. Friend’s speech was the way in which he highlighted the change in economic policy. He focused on the fiscal change and on the transition from the Budget restraint of the last two Governments to the more expansionary fiscal policy that this Government have indicated in the spending round and that we may see in the Budget. I would suggest there is something slightly deeper going on. There is a change in the Government’s conception of economic policy. We are not thinking of economic policy in what might be called a more purely general equilibrium way, by which investment flows automatically to investable propositions and finds returns. We are determined as a Government to build more energy into that and to adopt a focus that is more specifically targeted on regional needs and identities, and it is that sense of economic policy that marks a distinct intellectual step forward. If anyone is interested, I tried to explain this in a piece in the Financial Times yesterday that highlights this transition.

I will say a bit about the interesting speeches that were made by my right hon. Friend and other Members. He is right to say that lower taxes can be part of a fiscally expansionary policy. He possibly ignores some of the differences between ourselves and the USA. Obviously, the US had a massive fiscal boost, which is something it could do partly because of the dollar’s extreme strength as the global reserve currency. Of course, that was accompanied by a significant—in this country, it would be politically contentious—deregulation in energy. There are important differences between the US economy and our own.

My right hon. Friend mentioned the constraints under which the motor industry operates, but he did not mention dieselgate, which was an absolutely disastrous blow to the credibility of the global diesel manufacturers. Nor did he mention the fact that current diesels are still very heavy emitters—even Euro 6, compared with current environmental standards. The Government have frozen fuel duty and grown VED only in real terms. It is about trying to strike a balance between a shift towards a greener economy, particularly a green transport economy—at a time when we have not quite got to the point in the S-curve where the supply of electric vehicles is coming through at enough scale to warrant people using them—while moderating and mitigating the impact on households.

My right hon. Friend and the hon. Member for Oxford East (Anneliese Dodds) touched on what he described as the top-down imposition of IR35 rules. As he knows, IR35 rules have not changed. All that has changed is the way IR35 is being assessed, and we have called for a review in order to ensure that its implementation can be as smooth as possible. He touched on the issue of public sector productivity—again, rightly—and there might well be scope for using things such as telemedicine to improve the productivity of the public sector, but an intrinsic difficulty is one of the economic laws that we bump up against: Baumol’s cost disease. The cost of services relative to manufacturing continues to escalate, and it is not possible in the public sector to have industrial-type improvements in productivity. We do not want teachers to have too many pupils in the class, and we do not want nurses to have too many people to examine and support, so productivity is intrinsically more limited. The Government must therefore be cleverer about how we use technology, which is the purpose of the new GovTech fund that we have announced.

I will pick up on some of the other themes of the debate before turning to another point. I agree with the comments made by the hon. Member for East Londonderry (Mr Campbell) about the importance of spreading wage growth across the UK, which was a point also made by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) in his very thoughtful speech. I also share the view of the hon. Member for Glenrothes (Peter Grant) that it is a mistake to see property as a speculative asset, and there is no doubt that the crash of 2008 was caused by a massive over-leveraging in the banking sector. As he will recall—Labour does not like it when I point this out—UK bank borrowing across the sector as a whole was 20 times equity for 40 years, encompassing 1960, 1970, 1980 and 1990. In 2000 it started to go up, and by 2017 it was 50 times equity. That was what fuelled the enormous speculative boom.

[Peter Grant]

Will the Minister give way?

[Jesse Norman]

I will not, because I am very short of time.

I share the concern expressed by the hon. Member for Strangford (Jim Shannon) about the toxic atmosphere in SW1.

I will mention another issue that is more specific and personal to me, and I hope colleagues will indulge me. In my constituency in Herefordshire, we have been trying to create a new model of higher education through what we call a new model institute in technology and engineering. It has attracted a great deal of attention across Government because it creates the possibility of significant regional economic growth that is closely tied to the creation of university campuses in cathedral cities such as Canterbury, York and Lincoln. I flag it now because, from a national perspective, it represents a portable model by which higher education of the most value-added kind, and that therefore has benefits for entrepreneurship and business formation, can be moved to all parts of the country, having been tested and developed in Herefordshire. One would think that this was something that Government at all levels would support. Her Majesty’s Government, in the form of the Department for Education, the Department for Business, Energy and Industrial Strategy, and the Ministry for Housing, Communities and Local Government, have been extremely supportive of it.

One might also think that the local enterprise partnership, the Marches LEP, would support it. I am sorry to tell colleagues that the Marches LEP—I say this having had at least a year of wrestling with it on this topic—has been absolutely diabolical in the way it has treated this very innovative project. It has received £23 million from Government and all the support one could imagine. It has received private sector investment, and investment from matched funds. The LEP, which by charter is supposed to support economic growth in the Marches, has done nothing but prevaricate and delay. Even now, it is seeking to impose a £5 million indemnity on Government investment, although the Government made it clear in letters from the Secretary of State and from senior civil servants as early as January 2019 that no such indemnity was required. The specific people involved—the then chairman of the LEP, Graham Wynn, and the chief executive, Gill Hamer—should be subjected to significant criticism in the House. I put it on record that this important opportunity for a portable model of regional growth in higher education, which was developed through a pioneering model of tech and engineering at university and which offers possibilities and creativity, has been ignored and is being actively undermined.

Having said that, let me congratulate my right hon. Friend the Member for Wokingham again on introducing this very wide-ranging and important debate, which has examined not merely specific policy change but the very basis of economics itself. I thank him for securing the debate.