Economy: Productivity — Question

– in the House of Lords at 3:15 pm on 23rd July 2014.

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Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 3:15 pm, 23rd July 2014

To ask Her Majesty’s Government what steps they are taking to raise the United Kingdom’s productivity.

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the Government’s long-term economic plan is working, with GDP increasing by 0.8% in the first quarter of 2014. Productivity is also growing, with output per worker increasing by 0.6% in the first quarter of 2014. Alongside deficit reduction and an active monetary policy, we are making longer-term structural changes to support long-term growth. The Government’s industrial strategy policies and four key growth ambitions are also attracting investment and creating jobs.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords)

I welcome what the Minister says but is it actually working? Thanks to the Government’s policy of the job-rich, low-wage, low-skill, long-hours economy, as a nation we are producing fewer goods and services than we did six years ago. With such a policy, how do the Government intend us to pay our way in a competitive world, reduce our balance of payments deficit and raise living standards, if not through productivity?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, the party opposite is quite often desperate to find worrying economic news. I will talk about productivity: our growth is up, exports are up, manufacturing is up, employment is up, SMEs are up and inward investment is up. Productivity is an area that has remained static. From experience, noble Lords will know that this is a long-term project; it takes time to filter through our economic cycle, to see more productivity.

Photo of Lord Taverne Lord Taverne Liberal Democrat

My Lords, one of the most important factors in the improvement of our productivity lies in our strong record in scientific research and development. Does the Minister agree, as most of the vice-chancellors of our universities have made clear, that the greatest threat to our research and development in science would lie in our exit from the European Union?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, let me cover the European Union. We need the European Union for trade and the European Union needs us so exit is not an option. What is important is that we negotiate reforms within the European Union to make it more practical in terms of business and productivity. The noble Lord is quite right. One of the areas in which we invest heavily to increase productivity is research and development. It is important that we continue doing that.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, does the Minister agree that productivity has something to do with the 30 million workers out there? If the Minister agrees with that, is he aware that many of the countries doing much better than us—10%, 15% or 20% better in northern Europe—have something called works councils where everybody is involved in looking at all the questions about world market share, technology, productivity and so on? There is a big gap in this country, under this Government, who are doing nothing about it.

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, there are several reasons why our productivity has been a little weak. The good news is that it has gone up by 0.6% in the first quarter of 2014. Yes, we need more investment to increase our productivity. Compared to the G7 countries, a larger proportion of our productivity comes from our active involvement in the financial services industry. We need to encourage more manufacturing. We have the right tools and policies in place for that to happen. It is happening but it will take time to filter through the system.

Photo of Lord Vinson Lord Vinson Conservative

My Lords, one of the best ways of raising productivity is to increase demand. Unfortunately, the pound is rising so fast that it has now gone well above its purchasing power parity, making it much harder to export and much easier to import, the very converse of what needs to happen. Will the Government continue to look at every possible way of import substitution and, in particular, look at why a trading nation should not have some concern over its rate of exchange, the rate at which it trades? Could they suggest to the governor that he might begin to raise an eyebrow about the high pound and deleterious effect it is having on trade, productivity and, ultimately, employment?

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

My Lords, import substitution is not the answer in this very competitive world. As to depreciation of the currency, experience tells us that our currency is worth 25% less than it was at its peak in 2007. Depreciation is not the answer. We should let our currency fluctuate freely in the open market. Experience tells us that a depreciating pound will not result in higher exports.

Photo of Lord May of Oxford Lord May of Oxford Crossbench

Building on the admission that one of the greatest drivers of productivity is research and development, does the Minister agree that we need to do something to promote a more risk-taking culture? In the United States, bankruptcy is almost a condition for going forward in Silicon Valley; in our case, it means that it is hard to get a credit card afterwards.

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip)

I will cover the points raised by the noble Lord. First, on research and development, we are investing £30 million in the sector and we are giving incentives to companies to carry out research and development. As to low productivity compared to other countries, we have the right industrial and growth strategies in place to make sure that productivity goes up. With regard to asking companies to invest, we have given the right fiscal tools, including higher tax allowances, for companies to invest more.