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Economy: Growth — Motion to Take Note

Part of the debate – in the House of Lords at 4:37 pm on 29th January 2013.

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Photo of Lord Mitchell Lord Mitchell Shadow Spokesperson (Business, Innovation and Skills) 4:37 pm, 29th January 2013

My Lords, I am afraid to say-yet another businessman. It is getting rather dangerous. In many cases anniversaries mean little- just dates in the calendar-but sometimes they are useful moments to take stock. Tomorrow will be the thousandth day that this coalition government have been in office and it is a good moment to take stock of the economy. I must therefore thank the noble Lord, Lord Deighton, for securing this debate. As one of his sponsors at his recent introduction, I feel that I bear a personal responsibility, because for him it is going to be very tough to defend this Government's record.

Any way we look at it, the scorecard on this thousandth day is lamentable. Last week, as has been mentioned by several speakers, we received the GDP figures for the final quarter of 2012. As we all know, growth was minus 0.3%. We are heading for a triple- dip recession-unheard of in modern times. It is no wonder that the Prime Minister was anxious to distract attention with his speech on Europe. I know that the Government get tetchy when my right honourable friend the shadow Chancellor talks about flat-lining, but with only 0.4% growth over the past couple of years, what else can we say? Noble Lords should compare this with Germany, which has experienced growth of 3.6% over the same period, or better still, the United States, where the figure is 4.1%.

America is a very pertinent comparison. In many ways, the American economy and ours are parallel. Yet, while we wallow, the Americans are experiencing improving growth. There is no need to take my word for it. Noble Lords should look at the Dow Jones index, which is racing ahead. Indeed, the Nobel laureate Paul Krugman, in a notable column in the New York Times last week, totally debunked the deficit hawks in his own country. The United States did not pursue a policy of austerity, but instead chose stimulus through massive public investment while interest rates were kept at rock bottom. The result is that deficit and public spending as a share of GDP have started to decline of their own accord. Contrast this with George Osborne, who slashed public investment and raised taxes on families. In doing so, he has killed business confidence and growth and we know the result. The deficit has increased as a share of GDP and is up more than 7% on the equivalent period last year.

The facts in America, as they are in our own country, are that, when the financial crisis hit, the economy went into a tailspin, tax receipts fell and unemployment benefits rose. However, unlike us, the Americans held their nerve, re-invested and, as the economy recovers, the deficit as a share of GDP is falling. It is really easy economics to understand, so why does our Chancellor take a totally different position? If our economy were recovering, perhaps it would all have been worth the pain, but it is not. Everything is heading south. Indeed, in America, recent forecasts suggest that the federal deficit will be below 3% of GDP by 2015, a number that I am sure we, too, could live with.

So, where are we on the 999th day of this totally misguided policy? Our economy is static; our people are suffering; our businesses lack confidence; the banks are not lending; companies are sitting on piles of cash instead of investing; and our trade gap is widening. It is a total disaster, much of which could have been avoided were it not for the obsessions of the Chancellor of the Exchequer.

My Front Bench brief is SMEs, an acronym, by the way, that I loathe. Combining small businesses with medium-sized businesses shows how out of touch people are. Small and medium-sized businesses have very little in common, except for the fact that they are not large. But as everyone else uses this definition, I guess I will have to live with it. Interestingly, SMEs have held their own during this economic crisis. Employment figures have been pretty constant over the past five years and so too have export achievements. It has been large companies and the public sector that have shed their workforces. It should never be forgotten that SMEs contribute more than half of the UK's GDP.

This sector should be promoted and helped and it is here that I have some of my greatest concerns. It is absolutely true that this Government have spawned a multitude of financial initiatives to help SMEs. At one point, it seemed like a monthly occurrence that one programme or another was being announced to a baffled world. Although the Government may feel that they are doing well, the fact is that, in the SME sector, the situation is dire. No matter what programmes are announced, very little financial assistance seems to be getting through to the sector.

Many believe that the commercial banks take a significant cut out of government programmes in order to boost their own balance sheets. It is all so complicated and so difficult to understand one programme from another. To me, it all smacks of insufficient thought. I believe that the Government are making a grave mistake in looking to the high street banks to deliver their programmes. The truth is that the banks have forgotten how to relate to the SME sector. Five years of saying no, of being sceptical, of consigning troubled companies to the intensive care unit, now means that saying yes is hard to do.

Last month, I had the opportunity to visit the German Sparkassen banks. I know noble Lords are probably familiar with the German system, but what a contrast? More than 40% of corporate debt in Germany is channelled through these local savings banks. What impressed me was the long-term commitment that these banks have to their business customers, often going back decades. They stand on the touchline cheering their customers on. What a contrast to banks in our country. How many small companies have even met their bank manager? How many loans are accepted or rejected solely based on an online application, with never a human being in sight? In Germany, when a company gets into trouble, it seldom comes as a surprise and, if a banker is close to his customer, he can make an assessment based on something more than a computer print-out. I know some people say that we have had enough banker bashing, but until I see banks offering a real helping hand to SMEs, I will continue to criticise.

I would like to end by referencing my own area of business passion and that is technology. As some noble Lords will know, my whole business career has been in IT services, an area that I really care about. The Prime Minister seems to be captivated by technology, particularly the new business hub at Tech City. I am always sceptical about this. I have seen too many politicians who somehow think that they have become tech-savvy just because they can use the on/off button on their BlackBerrys. It is a lot more than that. We are blessed in this country, especially in London, in having all the constituent parts that are able to feed the new tech revolution-not just in IT but in fashion, media, advertising, pop music, and so on. All these are now converging into a new and very exciting tech revolution, much of it powered by smartphones and tablet devices. Mobile computing is here to stay and is becoming as ubiquitous as the pen and pencil of yesteryear. In addition, we have been swept away in the use of technology. This country does more online shopping than is done in any other developed county.

I end my speech today by asking the Minister a question that matters to the sector that I really care about. The Minister has been given the brief to speed up and manage infrastructure projects. Finally, we have had an announcement on HS2 and HS3, the first and second stages, and no doubt a major announcement on new airports will be forthcoming-if those in government can stop fighting among themselves-although, for the life of me, I cannot understand why it has to wait so long. Of course I know the answer, but why do party politics always have to take precedence over the national requirement?

When the Labour Government left office, we were ready to unroll universal broadband to all households by the end of 2012, but the coalition Government failed to make-good this guarantee. As a result, 5 million people are still denied access to even the most basic broadband coverage. Millions of families and thousands of rural businesses are suffering as a result. We have to be right at the forefront in IT technology, but we cannot do it without superconnectivity. Can the Minister give your Lordships' House assurances on this development?