Business and the Economy

Sheila Gilmore Excerpts

Monday 14th May 2012 Commons Chamber

[Vince Cable]

Clearly, the previous Government were not responsible for the global meltdown, but they were responsible for building up the largest and most volatile banking sector in the western world, and it was from that that the collapse followed.

To achieve a recovery, we need to build on some of the positive trends that are beginning to emerge. Despite the deep-seated problems of the economy and the slow growth, we have seen 634,000 private sector jobs created in the past two years, which is almost twice as many as have been lost in the public sector. Private sector job growth explains why our unemployment level, although distressingly high and a tragedy for many individuals, is no higher than that in the United States.

[Sheila Gilmore (Edinburgh East) (Lab)]

That figure of 600,000 private sector jobs has been given, on and off, for the past two years. Is it not the truth that the vast bulk of those new jobs were created in the early part of this Government’s term but were clearly related to the financial policies pursued by the previous Government, and that the number of private sector jobs created in the latter part of this Government’s term to date is extremely small?

[Vince Cable]

That is not correct. There has been a sustained improvement in private sector employment.

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[Vince Cable]

I am not here to attack journalists; I am not sure which ones the right hon. Gentleman is referring to. It is certainly true that the Governor of the Bank of England has been absolutely clear from the outset that in order to have long-term stability in banking, these reforms, or something very like them, had to be implemented, as we are now doing.

One area where business success and responsibility coincide is in relation to flexible working. The UK employment framework compares well internationally and has helped to keep unemployment relatively low, despite the extremely difficult economic conditions, but that is not to say it cannot be improved, both for workers and employers. We want a flexible labour market that supports growth and creates employment, and making sure that that happens requires acknowledgement of changes in family life.

Most women now go out to work and men shoulder more of the duties at home. As roles and responsibilities have changed, our lives have become increasingly complex. That is not just true of parents with young children. Many have to combine working with looking after an elderly parent, a sick partner or a grandchild. Extending the right to request flexible working to every employee will make that easier.

[Sheila Gilmore]

I am pleased to hear the Secretary of State endorse the needs of parents and carers. Will he comment on and perhaps put to bed the proposals appearing in the media over this weekend saying that we should restrict maternity leave to no more than six months? For example, The Sunday Times seemed to be full of that proposal yesterday.

[Vince Cable]

That proposal is not in the enterprise and regulatory reform Bill. We are committing to extending flexibility at work in a way that avoids unnecessary costs for companies and delivers real economic benefits. Research from the CBI, for example, found that 63% of firms offering flexible working reported lower staff turnover, saving on recruitment and training costs.

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[Mr George Howarth (Knowsley) (Lab)]

It is a pleasure to follow the hon. Member for Wirral West (Esther McVey). She will not be surprised to learn that I do not share all of her analysis of the problems, but I hope to refer to some of the points she made about the banking system.

When I was considering what I wanted to say in today’s debate, I was struck by a depressing familiarity—not about what I wanted to say, but about some of the relevant issues—as what I am about to say about youth unemployment in my constituency could have been said in the 1980s and in the first half of the 1990s. As of March, 16.3% of 18 to 24-year-olds in Knowlsey were jobseeker’s allowance claimants. To bring that into a more human focus, I should say that that amounts to 1,725 young people in that age range. Even though the figures were even worse in the 1980s, that is alarming enough. The question I wish to address in the time available to me is: what is going to happen as a result of this Queen’s Speech or the Budget that preceded it that will give those young people hope that opportunities are available to them?

In that regard, I wish to discuss a couple of possibilities, the first of which is apprenticeships. The Government make frequent broadcasts about how much they have invested in apprenticeships. Perhaps unusually for someone in this House these days, I actually was an apprentice—I served a five-year engineering apprenticeship—and the opportunities now being called “apprenticeships” are not what my generation knew as apprenticeships; they are training opportunities, but they do not have any of the characteristics of the apprenticeships of my day.

I have to say—this was as true of my Government as it is of this one—that the whole training system is in a complete muddle. I chair a local charity—the Knowsley Skills Academy—that trains young people who would struggle to find a place in the job market. Unless they are on sweet terms with such wonderful organisations as A4e, it is nigh on impossible for them to get any funding for that kind of training. The situation is not unique to this Government—my own Government got this wrong too—but it is time that we woke up to the fact that the national training systems do not work and that what we want to do is fund and support local organisations that actually can provide realistic training for young people.

[Sheila Gilmore]

Does my right hon. Friend agree that one of the problems with the way that things such as the Work programme are being funded is that the local organisations at the end of the supply chain are not getting the work at the moment and may go out of business altogether, along with their expertise?

[Mr Howarth]

Of course I agree entirely with my hon. Friend. What she says brings me on to my second point: what in the Government’s programme will be attractive to small and medium-sized enterprises? Last October, the Department for Business, Innovation and Skills carried out a survey of 500 SMEs, in which they listed the things they found to be obstacles to success. Some 45% cited the state of the economy; 12% cited obtaining finance, and I wish to discuss that in a moment; and 6%—it was there but it was mentioned by only that number—cited the issue of regulation. I want to talk about small businesses, because they could provide the work opportunity that young people in my constituency and elsewhere need.

I wish to discuss a firm in my constituency, Sterling Services. Its owner, Mr Blennerhassett, has been to see me to talk about the problem he faces. He described how he has been in business for 28 years, has always been in the black and has never had any financial problems with the banks. He told me what happened when he tried to get a loan of £70,000 from the Royal Bank of Scotland to employ two full-time adult employees and two apprentices, to pay for two vans and to make some minor adjustments to his premises. The response he got from RBS was, “We don’t have a flavour for construction at the moment.” So the possibility of him taking on two young people and giving them a real apprenticeship has been closed off by RBS.

Higher education might offer another opportunity for young people. I want to refer briefly to the so-called core and margin model mentioned by my hon. Friend the Member for West Bromwich West (Mr Bailey), which effectively means that universities charging £9,000 in fees will have a proportion of their students directed to lower fee higher education institutions. Some universities will therefore have fewer places and the Government have provided no assessment of how they think that will work in practice. It might mean that opportunities in local higher education institutions will be closed off to young people, which would be a further obstacle in the way of their finding employment.

Finally, I talked earlier about regulation. If one were to compile a list of things that are important for creating jobs and getting the economy going again, I would think that the last place one would look would be regulation. The idea that making it easier to sack people will kick-start the economy is, to say the least, foolish. It is worse than that, however. If the Government really think that the most important priority for legislation is to make it easier to sack people, they should be ashamed.

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[Sheila Gilmore (Edinburgh East) (Lab)]

I start by repeating something that I raised in an intervention with the Secretary of State at the outset. He repeated the oft-made claim about the number of private sector jobs that are being created in order to prove that the Government’s policy is working. In about January 2011, after just over six months in government, the Prime Minister told us that 500,000 new private sector jobs had been created by his Government. After another few months, he said that in the first year of his Government they had created 500,000 jobs. Now the Secretary of State tells us that in two years they have created 600,000 jobs. Presumably, if the 500,000 figure was correct in the first place, only 100,000 have been created in the last 18 months. At that rate of job creation, we will expect the next 18 months to give us about another 20,000 jobs. They cannot keep repeating the same jobs. The key fact here is that that 500,000, the Prime Minister’s original boast, was largely the result of the economic stimuli applied by the outgoing Labour Government. In other words, this Government have done virtually nothing to create private sector jobs, despite all their claims—claims that were repeated again today—that the public sector was crowding out the private sector and that was the problem.

I am not, on the whole, the kind of person who goes in for the Armageddon-like language that one sometimes hears on the left. In fact, I am usually irritated by it; language such as, “We are all going to hell in a handbasket” and “People will be walking in the streets without shoes.” Actually, I am beginning to wonder. At my surgery on Friday, two people came who had both been recently sanctioned as a result of disputed issues about non-attendance at the Work programme. Neither qualified for hardship payments because they do not have dependants. The only thing their local citizens advice bureau could tell them to do in the short term was to go to a food bank.

I did some research on food banks. The Trussell Trust, which many talk about as being a wonderful charity, on its website says that in 2011-12 food banks fed 128,687 people nationwide—100% more than in the previous year. It has more than 200 food banks nationally and it hopes to have one in every town. I do not think I am overly naive, but in my lifetime I thought that this sort of thing was history. I represented an area as a councillor for 16 years, which included a district that ticked all the deprivation indices boxes, and I do not recall a constituent telling me that they had had to resort to a food bank. The only food provision that I was aware of in Edinburgh then was some vans for the street homeless, but not for people who had simply found themselves unemployed.

It must give us food for thought that one of the most rapidly growing charities in our country is one providing food banks. That is not a criticism of the charity or those who volunteer for it; I am sure that they are doing an important job, which is obviously necessary. But what should make us angry is that there is a need for that.

[John Hemming (Birmingham, Yardley) (LD)]

Will the hon. Lady accept that the Trussell Trust was set up with food banks in the first Blair Government?

[Sheila Gilmore]

I am not saying it was not set up then. I am giving its own information that in the year 2011-12, it increased the number of people it was helping by 100%.

One of those constituents has been sanctioned for six months. Unless she succeeds in an appeal shortly, she will not get jobseeker’s allowance until November this year. She has very little family support for circumstances in her life. Do any of us sitting here have any concept of what it is like to feel that they will have no income for that length of time? I do not think that we have any concept of what that must feel like. I have also to ask, as she does seem to have certain health and personal problems, what has happened to all the boasts about the Work programme. The Work programme was going to be so personalised. Edinburgh MPs were taken in by one of the providers and told that they would have health professionals and counsellors who would help people with complex needs. I am afraid that it does not appear to have helped that particular constituent. Someone like that is collateral damage from a Government who frequently talk as though the problem that faces this country is that there are too many people on out-of-work benefits, as if their obduracy or the fact that benefits are somehow too high is causing the economy to flatline.

Only this weekend a Scots business man, Tom Hunter, was widely quoted as saying that Scots were addicted to welfare. He had just returned from China, where the economy is booming, and explained that the biggest worry there is that people in China might suddenly decide that they wanted high levels of welfare. I find that fairly incredible. I cannot really picture the situation—Tom Hunter and, presumably, a Chinese business man discussing how the biggest threat to China’s economy is welfare—but that is what he tells us.

Apparently, it is not just workers who are not working hard enough; now their employers are not working hard enough either. We know that some of those employers are sitting on capital, but why do they not want to invest it? For those running businesses, surely the major reason why they do not want to invest their capital and earn more money is that there is no demand for their products or services. If there is no demand, we have a big problem. Simon Jenkins, writing in The Guardian on 9 May, stated:

“Europe’s collective response to the 2008 credit crunch ranks with the treaty of Versailles and German reparations among the great follies of history… Those who warned at the time that the coalition risked double-dip recession by over-suppressing demand have been proved right.”

What is the solution? Simon Jenkins, like the Opposition, thinks that the British economy needs three things: demand, demand and demand. It needs cash in pockets and cash in tills. It needs the old Keynesian salve: money in circulation. That is what our plan is about: cutting VAT, removing the cuts to tax credits in order to put money back in people’s pockets, reducing the rate of VAT on home improvements, and all those housing proposals that my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) explained so eloquently. If we put that investment into housing, we would not only give badly needed homes to the people who need them, but create the jobs that would boost demand in local economies. That is what we need to do, and there is no excuse for not doing it. In Edinburgh we have the land and the planning consents; we just need the funding.

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[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

There has been a lot of doom and gloom today, I must say. I was sure that someone on the Government Benches would mention the fact that retail sales bounced back by 1.8% in March 2012. The House of Commons research paper, “Economic Indicators, May 2012”, states on page 20 that that was down to the fact that:

“Unusually high automotive fuel sales were a major contributor to retail sales growth in March.”

I think everyone in the Chamber knows why that was.

So many chief executives have been sacked in recent weeks for failing to deliver the performance promised by their high salaries that we might think the brief reference to directors’ pay in the Gracious Speech was unnecessary, or more appropriate to current Ministers. Apart from that, there was little in the Gracious Speech about business, investment, employment or growth. In fact, since the speech last week, the Government’s lack of vision for business has degenerated into an attack on entrepreneurs.

Aviva, Trinity Mirror and AstraZeneca shareholders have recently indicated that they have had enough of their chief executive officers. Why now? It is obvious that those shareholders sensed that they were beginning to lose control of the companies that they owned. The parallels between business and the Government are only negative in that respect. More importantly, is that situation just about executive pay, or is it a further indicator of corporate financial hoarding? Shareholders are savers who want great returns, of course, but what are the Government doing to get shareholders to increase their intention to part with their profits for further business investment? The real economic impasse is in getting companies to part with their hoarded billions of pounds, and that was not addressed in the Gracious Speech.

BT recently paid off a considerable deficit in its pension scheme. It paid £3 billion by the end of March and will make nine annual payments of £325 million. BAE Systems had a £2.1 billion cash pile, yet in the past two years it has cut 22,000 jobs, 3,000 of them in the UK, while returning £2.2 billion to shareholders. The story is similar at the oil services company AMEC, which ended 2011 with £521 million of cash and unveiled a £400 million share buy-back programme. Last year, shareholders’ dividends paid by listed companies jumped by 19% to a record £67.8 billion, according to Capita Registrars, and they are expected to hit a new high of £75 billion this year. Jonathan Bye, chairman of the Food and Drink Federation’s SME forum, says:

“Companies like Nichols have plenty of cash…the irony is that the big manufacturers are sitting on cash because they just don’t know how to use it.”

After this Gracious Speech, they still will not.

The Government’s ideological strategy is to focus on an enterprise and regulatory reform Bill that is supposed to reduce burdens on businesses by repealing unnecessary legislation and limiting state inspections. The argument is the same as ever—shrink the state, deregulate and get out of the way of the private sector. They say that it worked perfectly in the years following the 1990s recession and the early 1930s depression. It is expansionary fiscal contraction, the antithesis of Keynesian stimulus spending.

We have had two years of this already. Despite the evidence provided by the double-dip recession, of which Opposition Members forewarned, the resounding message of the Gracious Speech is “more of the same”.

[Sheila Gilmore]

It is interesting that my hon. Friend mentions the parallel with the 1930s. One parallel that worries me is that, as in the 1930s, there is a huge difference between different parts of the country. Does that perhaps explain why so many members of the Government are apparently unaware of the effects of the recession—they represent parts of the country that are not suffering as badly as others?

[Tom Blenkinsop]

My hon. Friend makes an excellent point. Before the general election, the now Prime Minister stated that the north-east economy needed serious rebalancing. Actually, the north-east is the lead region for exports, with more than £13 billion a year. If the Labour Government got everything so economically wrong, why, despite the overarching burden of the public sector, has the north-east managed to beat every other region in the country? I am bemused, foiled and perplexed by that one. The Prime Minister might want to come to the Dispatch Box on Wednesday and explain it to the workers of Alcan and other industrial workers in the north-east let down by the current economic policy.

Business investment is actually shrinking, and in the final three months of 2011 fell by a whopping 5.6%. It is the single biggest drag on economic growth, with a negative gravitational pull of 0.5%. Business investment is still more than 15% below its pre-recession peak in 2008. Unlike in the 1990s recovery, when private sector hiring employed four people for every one public sector job cut, business recruitment is extraordinarily weak. For evidence of that, we only have to look at the private sector last year. Admittedly, it took on 226,000 staff in full-time but mostly part-time positions, yet figures from the Office for National Statistics show that 270,000 public workers were laid off. The Government’s official forecaster, the Office for Budget Responsibility, said that 2012 should be the year of the business renaissance. Of the weak 0.7% growth the OBR expects the UK to eke out over the next 12 months, 0.6% is scheduled to come from business investment—the single largest contributor.

We have been here before. Last year, the OBR forecast that business investment would deliver 6.7% growth, but it did not. Instead, it shrank by 2%. According to the Bank of England, 2012 is not looking very encouraging either, despite the OBR’s optimism. Its recent agents survey for February found that

“investment intentions continued to weaken, suggesting little growth in spending on capital over the next 12 months”.

That is mirrored by Barclays Capital’s Simon Hayes, who said that the OBR’s projections required a level of spending not seen in 30 years.

Essentially, my point is that the Queen’s Speech does not introduce any policy or legislation to enable this Parliament to get hold of the £750 billion of cash under the corporate mattress to invest in Britain and ensure we have a genuine rebalancing of our national economy.