The Government’s Productivity Plan

Richard Fuller Excerpts

Tuesday 28th February 2017 Commons Chamber

[Richard Fuller (Bedford) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Newark (Robert Jenrick). I agreed with almost everything he said.

Just to remind everyone why we are here, let me say that this debate is about the supplementary estimate for the Department for Business, Energy and Industrial Strategy. This is the point at which the Government own up at the end of the year to where they are spending too much or too little against what they said they were going to spend, and set out whether they are going to invest more or less than they said they would. The variance can sometimes involve outstanding amounts of money. For this year, the Department is requesting further resources to be expended not exceeding £10.7 billion; that resources for capital purposes be reduced by £10.5 billion; and that the sum authorised for issue out of the Consolidated Fund be reduced by £13.8 billion. Those are large changes, but to spare the Minister’s blushes, let me say that he knows well that that is because of major structural changes in the Department over the year that have moved it from being an expenditure-heavy sector to one that will be ultimately much more focused on capital.

I challenge anyone to wade through document HC 946 and understand where the money is going—if they can do so, they are a better person than me. Given that the Minister is so sensible, may I ask him to challenge the Government to put a couple of things into these documents that reflect the current times? First, on variance at the end of year—when Departments are looking for more or less money—can they explicitly say, “Here is where we have saved money”? As several hon. Members have pointed out, people accept that we have to live within our means, so why can we not use this end-of-year variance accounting to say explicitly, “These are the areas where we have wished to save money,” because it would be a good opportunity to get the message out?

Secondly, on capital budgets, it would be nice in an end-of-year summary to get a sense of the return on capital to remind us how the Government judge the returns on the projects they are asking about through the variance—either when they are cutting money, as in this case, or if they are asking for more money. That is my overall point about estimates. I am just asking for a few things to improve the process for those of us who cannot easily understand what is going on from looking at six columns of numbers.

This debate also comes in the context of the productivity plan and its younger sibling, the document on the industrial strategy. Those two documents sit together. I very much welcome the initiative of my right hon. Friend the Member for Tatton (Mr Osborne) and the current Secretary of State for Communities and Local Government—he was then the Secretary of State for Business, Innovation and Skills—to pull together these various projects into a productivity plan. Yes, that plan was a bit of a mixed bag of initiatives that could easily have suffered from the criticism that my right hon. Friends were just pulling things together into a single document but, my goodness, at least we had a single document against which we could evaluate projects and with which we could hold the Government to account on this crucial issue of productivity.

Productivity is one of those shrouds that politicians like to grab hold of so that they can worry. We like worrying more than we like being happy, and when it comes to the national economy, it has to be either our balance of payments deficit or our poor productivity level that politicians wish to grab. They like to do that because they like to intervene in the economy and try to improve it. I have to admit that, in many instances, the Government play a positive and active role in the economy, but when they look to do too much, they have to know when to stop, so I make my third recommendation to my hon. Friend the Minister, which is that he learns this most important word to use in his deliberations—the word “no”. That means, “No, we’re not going to spend money on that”, “No, we’re not going to invest in that project”, “No, you haven’t done your analysis correctly”, or, “No, that rate of return is not correct.”

I make that recommendation because the Minister will be inundated with a variety of people who will attach their requests to the broad principles in the productivity plan, or the even broader principles in the Government’s industrial strategy, so that their ideas might gain favour. He will have to analyse those deeply and make some people very disappointed and unhappy by saying that their projects and initiatives are not worthy of taxpayer investment. That is extremely important because, as my hon. Friend the Member for Newark (Robert Jenrick) said, we have a responsibility to future generations. We cannot carry on living beyond our means. Before we spend what is essentially their money, we must have an acute sense that, if we are investing for the future, the rate of return will benefit them.

The productivity plan had another tremendous advantage, because it focused our attention not on how much we were spending, but on how quickly we were implementing the projects to which the Government were committed. One of the projects in the plan—it was subsequently raised by the National Infrastructure Commission—that was highly thought of was the Oxford to Cambridge corridor, to connect through Milton Keynes and Bedford, and onward to Cambridge. I am pleased that the Department for Transport has heard the message and is now coming forward with new ideas to make that happen sooner than was envisaged even at the time of the productivity plan.

I ask the Minister to pay particular attention to how procedures involving the interaction of Departments can be enhanced. I am talking about the time a proposal spends sitting in the inbox of one part of this complex system of organisations, Departments and agencies that have to approve something before it moves to the outbox and on to the next Department. This applies particularly to aspects of the road highway between Oxford and Cambridge, where there is an opportunity to move the timeframe forward. I would be very grateful for the opportunity to talk to the Minister or his counterparts in the Department for Transport about this.

[Callum McCaig]

The hon. Gentleman is making an interesting speech. When he said that his advice to the Minister was that he should say no to projects, I assume that he did not mean the ones that he was putting forward himself, which are of course very valuable.

[Richard Fuller]

I would hope that the Minister would use exactly the same assessment for that project as he would for any other. We have to build an economy that works for everyone. We have the tools at our disposal to do that, and it would be good to see the Scottish Government using some of the tools at their disposal to do something productive about their own economy, rather than complaining all the time and blaming others, as the hon. Gentleman has just done.

Let me respond to the challenge from the hon. Gentleman. If the Minister believes, as seems to be the case on the basis of what the National Infrastructure Commission has said, that the corridor between Oxford and Cambridge is important, he has a responsibility under the principles of the productivity plan to implement the relevant initiatives, plans and investments as quickly and effectively as possible, and to set a new benchmark for the speed of implementation.

Let me briefly touch on two further aspects of the plan. First, the Government response to the Select Committee report talks about the commitment to “funding innovation”—yes, yes, yes. “Yes” is the word—I repeated it three times—that the Minister should be saying about innovation. When Governments seek to intervene through something as cumbersome as an industrial strategy, there is a risk that they do not listen to the voices of the entrepreneurs—those who are prepared to take risks or those who want to disrupt. As we leave the European Union, there will be a number of additional things that the Government can do on innovative financing, such as peer-to-peer lending, and especially to reduce some of the restrictions on the enterprise or seed enterprise investment schemes. That would get people investing in our early-stage businesses much more effectively.

Similarly, we have heard a lot of good things from the Government about their commitment to improving management and leadership. It is easy for us to take that for granted. It is one of the soft things that arise when we think about productivity, but it is essential that the management and the leadership of our businesses have the resources, skills and capabilities to be expected from a global leader in business and a country that wants to trade freely and openly with the rest of the world.

Finally, in both the productivity plan and the industrial strategy, my personal feeling is that not enough reference is made to the future way in which employment and work will operate. We heard from the Chair of the Select Committee about how a lack of security in the labour market is a concern to not just the people directly affected, but all of us who want a country and an economy that work for all. We heard from my hon. Friend the Member for Warwick and Leamington (Chris White) about the potential of the fourth industrial revolution, but with that great potential to improve our productivity will come quite dramatic changes in the skills and work required from people who are currently employed in many segments of our economy.

In those sectors and industries, what will be the Government’s answer to the impact of achieving higher productivity? This is the other part of the point about what happened in the past that we discussed earlier. More people are employed, and we should not throw that away in pursuit of higher productivity because we should be able to accomplish both things. Similarly, in the future, we should not look only for increased productivity if it means that what for many people is part of their being—going to work, working hard and having purpose—will be dramatically changed by measures that are taken to invest in and take up the challenges of the fourth industrial revolution.

If the Government are silent about that in their productivity plan over the next few years, they will fail the British people. From what we hear from the Prime Minister, she will not do that, but we have to get the detail of what the plan will mean as we look beyond today’s estimates debate.

--- Later in debate ---

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a real pleasure to speak in this debate and to follow so many excellent and well considered contributions. I must draw particular attention to the opening speech from my hon. Friend the Member for Hartlepool (Mr Wright), the Chair of the Business, Energy and Industrial Strategy Committee, who made almost all the points I intend to make but much more eloquently than I could ever hope to do. This is one occasion on which Newcastle will follow in Hartlepool’s train.

As many Members have said, productivity is a key subject. It is one of the most important challenges facing our economy, as the hon. Member for Warwick and Leamington (Chris White) emphasised. High productivity is correlated with high wages and high skill levels. If we want a high-wage, high-skill economy—as we on the Labour Benches certainly do—improving our productivity must be a key goal. However, under this Government our productivity has fallen consistently. We are now 30% behind Germany, the US and France—the widest gap since 1992. That was decades ago, when there was another Tory Government with a small majority. Since 2010, UK productivity has grown on average by just 0.4% a year. The OECD, the CBI, the Office for Budget Responsibility and the Bank of England have all expressed concern that continued low productivity growth is holding back our economy.

How can we improve our productivity? It is quite simple, in a way. We need to get more out of the same inputs, and that is about either people or technology. The economist Mariana Mazzucato has said that productivity comes from allowing people

“to work more efficiently, with state of the art training, technologically advanced machinery, an innovative division of labour, and harmonious capital-labour relations.”

First, let me discuss people. As the hon. Member for Horsham (Jeremy Quin) said—I entirely agree with him on this point—people are the key asset of our economy and businesses. However, this Government consider labour to be a commodity, and commodities are not productive. Imagine a worker sitting at her desk feeling disempowered, unvalued, and disfranchised. Of course her productivity will be lower. But empower her and give her a sense of agency and her productivity will rise. Skills are an essential part of empowering workers and improving their productivity, as emphasised by the hon. Members for Kirkcaldy and Cowdenbeath (Roger Mullin), for Derby North (Amanda Solloway), and for Aberdeen South (Callum McCaig).

However, the productivity plan that we are debating with the estimates committed nothing to skills other than a promise to fund Charlie Mayfield’s initiative to boost management skills to boost business—hardly an extensive investment. The BEIS Committee’s report criticised that lack of commitment and argued for a renewed focus on upskilling the workforce. Unfortunately, the Government do not seem to have taken that criticism on board. It has been 18 months since the productivity plan and six months since the BEIS Committee’s report, and last month’s industrial strategy Green Paper did not recognise the criticisms at all, simply promising £170 million for higher-level technical education when the Government have already cut the further education budget by 14% in real terms in the last financial year alone. That hardly remedies the inequality of esteem between further and higher education highlighted by the Committee, never mind going some way to deliver the high skills that we need to be competitive on the global scene.

In an era of technological change and when people are living and working longer, lifelong learning should be a key part of any Government strategy to upskill workers and improve national productivity. People no longer have one job for their entire career. We need to be able to upskill and respond to changing technological requirements. However, the productivity plan and the Green Paper—220 pages in total—contain only a smattering of references to adult learning and not one specific policy commitment.

The second significant factor in productivity is technology. There is both opportunity and threat in the technological transformation that we are undergoing. Analysis from the Centre for Economic Policy Research demonstrates that industrial robots and information technology can increase both wages and productivity. It also found that the increased use of robots raised countries’ average growth rates by about 0.4 percentage points between 1993 and 2007. It is clear that sustainable, long-term, smart growth requires significant investment in technology. The BEIS Committee report argued that

“if the Government is serious about productivity and competitiveness, it needs to commit to a total level of public and private R&D investment”

of 3% of GDP. Labour has committed to that target. Will the Government? In advance of the Budget, will the Minister say today that he is proud to commit to a 3% target?

As has been mentioned, output in Germany is 34% higher than in the UK. Germany’s R and D spend as a percentage of GDP has been at or near the 3% target for many years. In contrast, our spend has languished at barely half the 3% target. However, the productivity question is not just about the development of new technologies; we must ensure that businesses can use them and utilise the productivity benefits that they bring. That is crucial in sectors such as retail.

[Richard Fuller]

The hon. Lady has talked a lot about the targets for how much we invest in R and D, but does she appreciate that there are other points of view that say that it is about the way we account for our R and D investment? If we look at the type of investments that we make in the UK, we see that the comparison between us and other countries is much more favourable. It is not just about the quantum of our investments but about the returns on those investments.

[Chi Onwurah]

I agree with the hon. Gentleman that it is not only about what we invest but about the returns and where those returns go. For example, it is about how the public sector ensures that it reaps those returns.

We can use statistics in many different ways, and I will not attempt a battle of statistics here, but I hope the hon. Gentleman is not arguing that the UK is leading the world. However we account for it, the UK is not leading the world in investment in technology, science and R and D, which is where our future lies. We need greater investment in that. [Interruption.] I am not sure what the Minister is saying from a sedentary position, but I hope to be enlightened at some point.

Again, the Government’s industrial strategy has absolutely nothing to say about ensuring that sectors such as retail can take up technology. The Government chose to cherry-pick certain favoured sectors for backroom deals and failed to address the root cause of our productivity crisis, leaving the majority of British workers out in the cold.

Skills and technology are key to improving productivity, but we also need a strategic vision, which is notably absent from the Government’s productivity plan. As the hon. Member for Cannock Chase (Amanda Milling) highlighted, we need a plan and a strategy. When the Government’s industrial strategy came out, we saw that it had plenty of pillars but no vision. Adding the 10 pillars of the industrial strategy to the two pillars of the productivity plan results in 12 pillars and no vision. The Government are building pillars on hot air.