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Economy: Growth — Motion to Take Note

Part of the debate – in the House of Lords at 5:04 pm on 29th January 2013.

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Photo of Lord Birt Lord Birt Crossbench 5:04 pm, 29th January 2013

It is a pleasure to follow the keenly felt and eloquent speech of the noble Lord, Lord Forsyth. It was not the first in this excellent debate. As the noble Lord, Lord Barnett, has reminded me, I am not qualified to add to the powerfully expressed views of some of our leading economists during the course of the debate, with others still to come. However, I shall offer some perspectives from the front line of the real economy.

I am involved as a director in a number of leading businesses in Europe and the UK, as well as a promising internet start-up. I am also an adviser to one of Europe's leading private equity houses; as a result, I am exposed to a great number of portfolio businesses, chiefly operating in the UK and Europe. Anyone who works in the ever more complex and competitive global economy, or anyone who has ever happened across the rusting industrial archaeology of the old Eastern bloc-I am sure this is common ground on all sides of the House-will testify that government cannot substitute for entrepreneurs or for genuine corporate expertise. The noble Lord, Lord Lawson, reminded us of that at the beginning of the debate.

What can Governments do to promote growth? First and foremost, as others have said, they can maintain a stable economy in which business can plan with confidence-something we have resoundingly failed to do in this last period of our history, as we all recognise, whatever the mix of reasons for that. Surely it is plain that the route back from the dire circumstances we find ourselves in, whether it is route A or route B, is a long one.

Secondly, from Governments, we need tough regulation of our financial institutions-and we are probably about to have it. They have let us down. We need that regulation to ensure that they manage risk responsibly, which they patently failed to do; that they lend sensibly; and that they do not hoard huge rafts of assets-which they are still doing-that they have neither the skill nor the means to develop and grow. That is undoubtedly one of many causes of the absence of growth in the real economy.

Thirdly, Governments need to ensure that the climate for investors is friendly and internationally competitive. In my experience, the incentive regime for business start-ups in the UK works well. But there is a particular failing in the capital markets that I do not understand, and which needs investigating. Investment in start-ups by business angels or small venture capital companies is thriving. As a result, early stage companies in the UK are prospering in large numbers at the moment, particularly in the new technology sector. However, UK capital to grow these successful young companies into major regional or global players appears mysteriously absent. There are many strange failures in our capital markets that we need to work harder to understand. With a lot of these younger companies, highly professional and acute US players fill the void and snap up our best companies before they can grow in a UK or European environment.

There is a further difficulty in attracting substantial global investment into the UK, which I do not think anybody has mentioned so far. Major investors are nervous still about the instability in the eurozone. I am exposed to many of these investors-the giant US pension funds, or sovereign funds in the Gulf-and they have trillions to put to work; there is no absence of funds in the wider world. Rightly or wrongly, they wrap up the UK into their concern. So it is in our interest as a country, though perhaps we cannot do very much about it, to help to accelerate the painfully slow process of resolving the eurozone crisis.

Fourthly, Governments can help to ensure that UK business has access to the right skills, as several noble Lords have mentioned. As we all know, we have some educational institutions of global renown, but we do not begin to produce all the skills that we need for the UK economy. In business meetings in the UK now, I regularly find that I am the only British citizen in the room.

We need to motor our economy to attract rare skills from abroad, but our immigration rules may begin to handicap us. President Hollande's early actions, and the response of France's business elite to them, remind us that talented individuals with rare skills in great demand globally are highly mindful of the overall tax regime when they decide where to settle.

As the noble Lord, Lord Mitchell, noted, Britain is currently the most advanced e-commerce environment in the world. However, we saw the lack of critical skills in areas of rapid development such as mobile and data mining. Without resorting to an entirely directive approach to designing resources within our education system, the departments for business and education need to be more alert and fleet-footed in spotting critical skill shortages and speedily encouraging and incentivising the relevant educational institutions in the UK to meet them.

I have left until last our area of greatest comparative weakness, which many noble Lords have already mentioned: the UK's persistent failure to invest in infrastructure. As others have mentioned, I note that the Deputy Prime Minister acknowledged last week that it was a mistake to cut into the Government's capital investment programme when the deficit reduction programme was first agreed. Mr Clegg may not be aware that we as a country have been here many times before. He should ask his officials to dig out the analysis conducted by the Cabinet Office Strategy Unit during my time at No. 10 on why we had by far the worst transport infrastructure in the developed world. I wholeheartedly support all that the noble Lord, Lord Wolfson, said about that, particularly the wonderful passion that he expressed about our impoverished road system. A large part of the reason for that chronic underinvestment over many decades-indeed, for the past 40 years, as the study identified-was that Governments of all persuasions had cut capital ahead of revenue expenditure when a downturn occurred. This is not just a recent occurrence.

At the time of that study, I concluded that the main root cause was the culture of the Treasury itself, understandably determined at such times of national reverse to rein back public spending. Officials aggressively target the easy wins first, and tomorrow's capital spending tends to carry far less political pain than today's welfare cut. Thus we continually fail to invest in infrastructure to modernise our economy and, as many have said, make it more productive.

Last Friday, I journeyed from Düsseldorf to Frankfurt Airport, a distance of about 120 miles. It took no time at all. I travelled by a high-speed train, which reached a top speed of 200 miles per hour. The train stopped, most conveniently for me, not in the city centre but at Frankfurt airport itself. Frankfurt airport has four runways. Heathrow-our lead airport-is not integrated into our main rail network. As we all know, it has only two runways, and, as we are all painfully aware, it is always-especially in winter-absolutely bursting at the seams.

This month, the Chinese Government announced plans to build a seven-runway airport for Beijing. In the last decade, China has built a fraction under 4,000 miles of high-speed rail track. The UK currently has a paltry 68 miles of high-speed rail track, and we are already experiencing an almighty struggle to build only another 330 miles of track by 2033, in 20 years' time. Why will it take 20 years' time to build that absolutely critical national arterial train line?

We need a considered 20-year plan-we needed it long ago, but we are where we are-for modernising our road, rail and air infrastructure in the UK, and for incentivising the private sector to fund it. We also need a sense of urgency. Beyond that, we need a full-bodied integrated and strategic approach within Government to UK national productivity, encompassing skills and incentives as well as planning and infrastructure.

The Minister has resoundingly proved his ability to focus on a big challenge and to deliver it emphatically. Will he offer any hope that in the midst of this intensive and prolonged economic crisis, we can at long last begin a process of focusing systematically on UK productivity?