My Lords, as we near the end of this Parliament, and on the back of the Autumn Statement, I am pleased to have this opportunity to appraise both progress on growth in the economy and the support that the Government are providing for business. But first, stealing thunder springs to mind. I am grateful to my noble friend Lord Borwick, who otherwise might have led this debate but unavoidably cannot be in his place. I also think that much of your Lordships’ thunder may be stolen today by the maiden speech of my noble friend Lord Rose of Monewden. I feel sure that his words of wisdom, honed by so many years of distinguished service in business, will provide a certain magic and sparkle. I can only assume that this is it; this is his Plan B.
The robustness of the economy and the opportunities for government to give resources to vital projects or services are inextricably linked. It is only because of a strong and growing economy that we are able to fund vital public services and major infrastructure projects. That is why it is so pleasing that my right honourable friend the Chancellor has been able to announce an essential annual £2 billion front-line boost for the health service, where expected increasing demands has put the ability to deliver at point of need under strain. That is why there is room to provide £15 billion to fund 100 projects, of which more than 80 are new, from improving links to the port of Liverpool, upgrading the A1 up to near the Scottish border, constructing the Stonehenge tunnel and in effecting the so-called “smart” conversion of the M62. That is why there is funding available for other major projects, such as £200 million for the proposed Manchester science research and innovation centre in the northern powerhouse and a £100 million housing boost for the second garden city at Bicester, that great centre for retail near to where I live.
This is welcome news because such projects are of national importance but also generate growth for local communities. They provide more jobs for skilled labour around the UK, including for the north-east and north-west, some of the supply for which will emanate from the new apprenticeship and the university technical colleges. This positive news builds upon the growth deals announced in July, including the city deals in 26 urban areas and support for the 39 local enterprise partnerships, with the provision of £6 billion-worth of cross-sectoral funding for transport, housing and business support and, of course, skills projects.
Growth and the health of business are important for every individual around the country because the ability to create jobs and gain new skills gives families greater financial security, opportunity to increase their spending power, more hope to plan for their careers, and it allows them better to realise their own personal plans and ambitions for the longer term. So, to be effective, growth must impact the employee, too. The news yesterday of the rise in the personal tax allowance to £10,600 next April is a direct boost to net pay. My right honourable friend the Prime Minister has pledged to raise this further to £12,500 by 2020. That is why I welcome the Autumn Statement which builds on these important values and ambitions and looks well beyond this Parliament to increase prosperity right around the country.
According to the ONS, growth since 2010 has seen the creation of more than 2 million private sector jobs, leading to the UK reaching a record 30.79 million employment level, and 1.8 million apprenticeships have been created. The UK was the fastest growing economy in the G7 in 2014 and is predicted to be the fastest in 2015 after the US. Annual GDP growth is now a confirmed lively and sustainable 3% for 2014, with 2015 predicted to be 2.4%, with marginally slower growth, primarily due to the continuing crisis in the eurozone and some other key export markets.
However, competitively, the UK is in a much stronger position, having grown 2.5 times faster than Germany but, less surprisingly, more than seven times faster than France. Some of the reasons for such strong growth stem from 2012, when the industrial strategy was launched by BIS. A strong and lasting foundation was built, with the emphasis and impetus placed on 11 key sectors, and with a £600 million boost to support eight key technologies. It was designed as, and remains, a long-term strategy to stretch well beyond this Parliament, with manufacturing and exports set to play a bigger role in rebalancing Britain’s economy.
To aid this, the Government in 2013 doubled the annual investment allowance to £500,000, meaning that businesses would not pay tax upfront for their investing in the future. Government lending to exporters was doubled then, while cutting the interest rate on export loans. It is therefore encouraging that since the Budget the OBR states that it has now revised upwards, from 4% to 27%, its estimate of business investment over this Parliament. But on exports, there are challenges. UKTI has taken splendid strides in reaching beyond the depressed eurozone into many new overseas markets, such as in Africa and Asia, with promising signs for securing contracts in Mexico and Colombia, for example.
In April 2014, UK organisations won four new contracts worth £1 billion to establish 12 technical and training colleges in Saudi Arabia. Growth has to come primarily from selling our goods and services overseas, and our 40-plus ambassadors, envoys, and overseas embassies and high commissions are working well as a team to make this happen. It was pleasing yesterday that an extra £45 million package has been made available for exports. Can my noble friend the Minister say how and where this money will be spent and give a brief update on the prospects for our export markets?
Relentlessly pushing to increase productivity, to sell our goods abroad, on the back of the industrial strategy, is a key reason why the Government must continue to support business. To attract new markets, the eight great technologies—for example, robotics and energy storage—are in the forefront of research into innovation. They are supported by Innovate UK, which bridges that crucial gap between the universities and research institutions, and converts such ideas into marketable global products at the business end. This bridging is essentially aided by the nine catapults—for example, high-value manufacturing, cell therapy, satellite applications and transport systems. The importance of such initiatives cannot be underestimated as this will allow the UK to make its mark as the global base of choice, the centre of excellence for future technologies, making products and components for global markets.
There is a fascinating project focusing on the development of autonomous vehicles, interconnecting smart technology and the “internet of things”, robotics, and sensor technology. Such innovations are nascent, but they are the future and require sustained funding. Yesterday, we heard that the UK is now ranked second in the Global Innovation Index, having been number 14 in 2010.
Manufacturing is now growing faster than any other UK sector, and faster in the UK than in any other major advanced economy. The High Value Manufacturing Catapult is a particularly vital ingredient for such growth. Its ultimate aim is to more than double the contribution of the manufacturing sector to the UK economy. With an innovation order book of in excess of £218 million, industry demand for the services of the HVM Catapult is clearly strong. So I am delighted that £89 million has been designated further to fund this, spurred on from the recommendations of the Hauser review. A direct benefit is seen in the development and manufacture of fan disc and fan blade technology for Rolls-Royce. This has resulted in two new production facilities in this country—in the north-east and Yorkshire—generating hundreds of high-quality jobs. Can my noble friend give the House an absolute assurance that funding for the catapults will continue as a priority?
It is, of course, not just big business that drives growth. I am pleased that the Autumn Statement has placed an important emphasis on small and medium-sized business with the unlocking of £1 billion-worth of support. Britain is once again a nation of entrepreneurs. It is a well worn truism but worth repeating: small businesses are the engine room of the economy. They now account for 60% of employment and nearly half—47%—of turnover. It is very promising that around
20% of small businesses say they want to grow significantly. At the start of 2014, there were a record number of small businesses at 5.2 million—up 330,000 on a year ago. It is the first time that the figure has exceeded 5 million. It is the entrepreneurial spirit in the individual that is particularly prevalent: 7.3% of working adults were actively involved in starting a business last year. It helps to explain why last year 500,000 new jobs were created.
This is not in the Autumn Statement specifically but in a report. Emerging from the generic description of SMEs, high-growth small businesses are highlighted for the first time. They are defined as enterprises with an average annual growth greater than 20% over a three-year period and with an annual turnover of between £1 million and £20 million. Promising statistics on these HGSBs have been published by Octopus Investments on behalf of the Centre for Economics and Business Research. HGSBs represent only 1% of total business assets but were responsible for 68% of employment growth between 2012 and 2013. For the past year, this meant that 5,000 new jobs were created per week from as few as 30,000 businesses and there was an 18% growth in this sector between 2011 and 2013. More pleasing is that two-thirds of these businesses are based outside the south-east.
However, the report cited two significant barriers to growth. Skills shortages were highlighted by one in five HGSBs, in particular in science, engineering and technology. The second, an old chestnut, was access to funding. Some 25% of the HGSBs stated that borrowing was “difficult” or “very difficult”. It is noted that net lending from the banks fell by £300 million in the second quarter of 2014. Venture capital trusts, enterprise investment schemes and angel co-funds, for example, remain critical backstop funding sources, in addition to the successful UK AIM market. However, through the British Business Bank, yesterday’s extension of the enterprise capital fund programme will provide £400 million, with the guarantee of new lending of up to £500 million for SMEs. That is most welcome.
A strong economy allows for greater flexibility in reducing taxes for companies and individuals, and in making businesses more competitive. We welcome the review of business rates for 2016, as well as the doubling of small business rate relief for another year, the strengthening of the entrepreneurs’ relief, the social investment tax relief and the increasing of the R&D tax credit for SMEs right up to the maximum allowed. On tax, and with my old intellectual property hat on, can my noble friend the Minister update the House on the status of the tax advantage on the patent box? Secondly, how satisfied is he with businesses’ ability to access finance? What more can be done to encourage the banking sector to stimulate growth and productivity? I welcome the measures in the Small Business, Enterprise and Employment Bill that will take further steps for banks to be more transparent in their lending policies. But, as the Chancellor was at pains to point out, there is much more to do. Of greatest importance is the need to redouble our efforts to continue to tackle the deficit.
I return, finally, to what also matters: the individual, the employee and the benefit to him and her from business growth. Interest rates remain at an all time low, but wages still lag behind inflation in many sectors. The signs for individual pockets becoming deeper are encouraging: 85% of the working population are in full-time work, the claimant count is down 23%, the tax threshold is raised at the lower and higher rate levels, and the OBR has significantly revised inflation downwards and is predicting that wage growth will rise above inflation from next year for the next five years. Already, those who have been in work for over a year are experiencing a 4% growth in their wages. Even oil prices are reducing. We are earning and growing our way back to prosperity, which is the right way.
A journalist wrote last week that the Prime Minister and his party,
“need to draw the spotlight away from Nigel’s saloon bar and back to Dave and George’s repair shop”.
This is correct, and, because of the deficit, I believe that “repair shop” is still the right term to use. This Autumn Statement allows us to be safe in the knowledge that we have the stimuli, with the right spanners and the right workforce in place, to effect not just a patch up job but to continue a quality repair job which must be sustainable for the UK in the long term. I beg to move.
In responding to questions yesterday, the noble Lord, Lord Deighton, said with refreshing candour:
“I fully accept that this country has a long-term productivity problem”.
“earnings have not recovered as fast as we all would have wanted … because the economy recovered more slowly than we expected … that explains why it is taking longer to get the deficit down”.—[ Official Report , 3/12/14; col. 1337-38.]
The Minister sums up the weakness of government policy over the last four years: the failure to make much impact on productivity, reflected in particular in poor export performance; too few high-growth companies; a record balance of payments deficit; and average earnings still far below their 2010 level in real terms.
So the key question is: what impact will the Autumn Statement have on productivity? The measures on science and support for postgraduate students are welcome but the word virtually absent from the Chancellor’s Statement was “skills”. Every recent business survey of obstacles to growth highlights a skills shortage—in particular, the acute shortage of technicians. To tackle this, we need, in particular, a transformation in the number and quality of technical apprenticeships, by which I mean far more school leavers and young employees with good literacy, numeracy and social skills going through an intensive work and training route, leading to reputable technical qualifications, yet this is not happening.
The Government, and the noble Viscount in his speech, parade big figures for the growth in apprenticeships, but these largely involve older employees doing short work-based training courses and did not even count as apprenticeships until the Government reclassified and renamed them in 2010. Meanwhile, the number of apprentices under the age of 19 has been falling, the number in their early 20s has barely risen, and a high proportion even of these apprenticeships are of short duration and low quality, while the proportion of employers offering apprenticeships of any kind remains pitifully low.
Until this skills crisis is addressed systematically, productivity will remain poor and the underlying cause of much of the concern about immigration will continue —namely, the shortage of good employment with training opportunities for the two-thirds of our young people who do not go straight from school to university.
In my remaining minutes I want to comment on infrastructure, which is critical to long-term productivity. The single biggest infrastructure challenge facing the country was ducked by this Government in 2010—the expansion of hub airport capacity in south-east England, supplementing our most important port for goods and business people: Heathrow Airport. Heathrow has a big sign outside saying “full”. On this, we are still waiting for an independent review, which may or may not chart a viable way forward in a year’s time. There have been five years of delay, with seriously negative economic consequences.
In his remarks yesterday, the noble Lord, Lord Deighton, lumped public and private investment together to suggest that overall infrastructure investment was fine and we need not worry. This week we have had from the Treasury a long list of proposed road and flood defence schemes. However, although I pay tribute to the noble Lord’s work in driving many schemes forward—particularly HS2—the Government have performed more U-turns on road investment than a hapless driver following rogue sat-nav diversions. There was a mass cancellation of schemes in 2010, followed by the reinstatement of some in 2012, then this week’s list—lots of promises for the future. Meanwhile, far too little has actually been built—or even begun—in the five years that the Government have had to get things done. The same is true of flood defences and energy.
I should also note that HS3, which the Chancellor rightly highlights as vital to the northern powerhouse, is still only a slogan. A year after he announced the upgraded east-west rail scheme between the northern cities, and five years after the previous Government started work on the electrification of the Liverpool to Manchester line, which is the first section of the east-west link, there is still no plan setting out the upgrade projects from Manchester going east to Leeds and Hull, with costs and timelines, without which HS3 is just words and a press release. When he responds, can the Minister tell us when the project plan for HS3 will be published and by what date HS3 will be completed?
Housing supply is the gaping infrastructure hole at the heart of both the Autumn Statement and the Government’s record. The coalition is building fewer than half the number of homes needed just to keep up with population changes, and the Prime Minister has presided over the lowest level of housebuilding in peacetime since the 1920s. The announcement of a new garden city in Oxfordshire is welcome but it is not a substitute for the new contract needed between local authorities, central government and the housebuilding industry to double the rate of housebuilding.
Those are just some of the challenges facing the country on which Ministers are either silent or complacent. It will take a Labour Government to provide answers and to deliver.
My Lords, this is a welcome, if short debate. We are very much looking forward to the maiden speech of the noble Lord, Lord Rose, with his extensive business experience, and to his comments on the Statement published yesterday.
My noble friend, in opening the debate, outlined the many positive aspects of the Autumn Statement, and did so quite extensively. I do not want to follow him, but from these Benches I very much want to welcome the £150 million that has been promised to mental health expenditure, which we have championed, particularly in recent times. I also welcome the £100 increase in personal allowances for low and middle earners. This has had a major impact on low earners in this country in the programme of increases in personal allowances that have been made. This further increase will help those on low pay.
I also welcome from these Benches the removal of national insurance for apprentices under 25. That will undoubtedly encourage many firms to take on more apprenticeships, and that massive expansion and improvement in quality will, I hope, continue. I welcome the infrastructure spending and the roads programme, as capital expenditure is vital to the long-term productivity improvement and long-term benefits of the economy.
I also mention the postgraduate loans that have been introduced. This has been a gaping hole in the provision of funds for students, and those loans will make an enormous impact, just as the other loans have, on student numbers in our universities. The final thing that I would mention, which my noble friend touched on, is the whole industrial strategy being pursued by BIS. It has had an enormous impact and is very much welcomed, particular by manufacturing industry, and is helping to rebalance the economy in the way that everybody in this House wants to see.
When it comes to the balance of the Autumn Statement, I have some anxieties. I did not see whether the Chancellor or the Chief Secretary had their fingers crossed yesterday, but in many ways it is a fingers-crossed Autumn Statement. It is tremendously important that confidence is sustained, not only in the bond markets of the world but in the many businesses and institutions throughout the world that will be investing in this and other economies. I hope that the Autumn Statement will help to sustain that confidence in a way that will keep investment going. Those of us who have been involved in business know just how important confidence is in deciding to invest millions or billions of pounds in projects. Confidence is vital and I hope that the Statement will keep confidence high.
There is no doubt that the economy is growing at an incredible rate. To put on 2 million extra jobs—more than the whole of Europe combined—is tremendously consoling to somebody like me from the north-east, where we still have the highest levels of unemployment in the United Kingdom. It is an incredible achievement by the Government, and it is that growth in the economy that is sustaining the confidence to which I have just referred. However, the forecast cuts in expenditure that have to come in the next Parliament are enormous, and I am not sure that people outside this House, or even in the House, have fully understood the scale of the proposed cuts, which we need to think about very hard.
Under the proposals, the Foreign and Commonwealth Office will have had a 65% cut in spending. It is proposed that the Home Office should have a 46.5% cut in spending, and that BIS will have a cut of 30%. If those departments are going to face cuts on that scale, it will cause major difficulties for their own services and for the services they provide. Inevitably it raises a question about the ring-fencing of all departments, particularly the National Health Service, if the cuts are to be sustained.
The only hope, of course, is that growth really takes off not only in the economy generally but in the tax revenues that are coming in. That will enable future Chancellors not to have to make cuts on the scale that is being suggested. We need to be very cautious about whether we can sustain either ring-fencing or should make cuts on that scale. Anyone who thinks about this will see that they are probably impossible to achieve. That is why I described the Autumn Statement as a fingers-crossed one. If we get the increased revenue, we will not need to bring in some of the cuts that are causing such great disfavour.
My Lords, I shall begin by saying that I agree very strongly with my noble friend Lord Wrigglesworth. In no way does it make sense to continue with ring-fencing in the next Parliament. All public expenditure has to be judged on its merits, whichever department happens to be responsible for it.
In the short time we have, I do not want to talk about the particular measures in the Autumn Statement—I will discuss wider issues—save to say one thing. I know that my right honourable friend George Osborne is very anxious to go down as a tax-reforming Chancellor. This year, he has lived up to that with the reform of the annuities system in the spring Budget and the reform of the stamp duty system in this autumn budget—because that is what it is. Both of them are substantial and, in my view, welcome reforms.
On the wider issues, nothing is perfect in this wicked world, but by any reasonable standards the British economy is a success story. It is a success story despite, I have to say, the difficulties of conducting economic policy in coalition with my noble friends the Liberal Democrats. It has made the task immensely harder and I hope that this will not continue and we will be able to conduct policy untrammelled by this complication; it is difficult enough without them. It has also been a success story despite the public deficit having been halved. It is still too big but it has been halved, which puts into perspective the views of the naive Keynesians, some of whom are in our midst. I welcome in particular the consensus we now have between the two major parties that it is important to continue to bear down on the deficit. The two parties may have different ideas about how this should be done, but there is a consensus that it needs to be done.
One of the signs and proofs of the success of the British economy is to be seen across the Channel. The difference between the British economy and the economies of the rest of Europe is striking. There are two main reasons for this. One is that we are not members of the eurozone, which is a disaster. I regret that because I do not wish our neighbours to be suffering under the regime, but there it is. The other reason, which is probably more important, is that the massive range of supply side reforms brought in by the Conservative Governments of the 1980s have made the British economy far more flexible than any other economy of Europe. Fortunately, most of those supply side reforms have stuck. They have endured because even the Labour Party can see that they were successful in the 1980s and have remained a great strength for this country.
Looking ahead, much has been said about the warning lights flashing about the world economy. The world economy is tremendously important to a major trading nation such as ours, but it is very much a mixed picture. There is both bad and good. On the bad side, there is the eurozone, which I mentioned a moment ago, and also the problem of Japan going back into recession despite a massive Keynesian boost. The good is that the emerging world is still powering ahead. Obviously, no one would expect China to continue at the huge rate of growth it was achieving, but it is still growing and so is much of the emerging world. The other thing is the reduction in the oil price, which is hugely beneficial.
What do we need to do to continue with our success? There are two areas of importance. I have not got much time so I will mention one just briefly. We have to do far more to clean up the British banking system, which is so important to us as a great world financial centre and to the rest of British industry. The other thing is that we have to radically change our energy policy. We have an absurd energy policy, predicated confidently by DECC and its Secretary of State on an inexorably rising oil and gas price. In fact, the price has fallen and since the things that made it fall continue to exist, it is likely to continue to be weak. We have moved from a market-driven energy policy to one of state control of everything—and largely unaccountable state control. It is damaging for British industry, damaging for the poor and it is deterring investment in electricity and energy generally. We have to move back to a market policy for energy.
I do not have time to yield to interventions. That is the nature of a debate in which we are limited to five minutes each. We cannot accept interventions. But my time is already over so I will end by saying that I warmly commend my successor-but-five,
My Lords, I, too, was disappointed that in the Chancellor’s Statement we heard hardly anything about productivity. In fact, more has been said in this House than in the other place—and it needs to be said. In the past six years output per hour in this country has fallen by 3%. In the US it rose by 7.6%. In Germany, France and Italy it also rose. I assume that the Government’s view is that weak productivity is the price worth paying for the kind of labour market they have created.
I put it to the Minister that productivity determines our standard of living—our standard of living has always risen as productivity has risen. By neglecting this, the Autumn Statement is condemning us to yet more stagnation in our standard of living. Are the Government just hoping for the best? Are they hoping that as demand strengthens so our productivity performance will improve? I put it to the Minister that this is a gamble the Government should not be taking. Instead, the Government should be taking action because the benefits of rising productivity—equally shared between employer and employee—benefit us all, including the Government.
During an Oral Question on welfare on
The Government’s policy of subsidising low pay to encourage employment has certainly helped raise the number of people in work in the short term, but it has downgraded the quality of jobs. Surely, this is one reason why our productivity has been stagnant: most of the jobs created since this Government came to power have been part- time or in the self-employed sector. Many of these jobs are in an expanding service economy that has lacked the strong investment and skills needed to raise productivity.
The noble Viscount, Lord Younger, spoke of the rise in GDP, but GDP considers investment and consumption to be the same. It does not differentiate between money spent on research or new equipment and money spent on going on holiday or getting your hair cut. Indeed, GDP also includes value-destroying expenditure, like pollution or traffic jams: it does little for productivity. The living wage movement has given a number of examples where higher pay has actually bred higher productivity. The Low Pay Commission has said that raising the minimum wage, alongside improved training, could even help raise the UK’s productivity.
Yesterday, the Minister referred to productivity rather indirectly, through infrastructure and lower taxes; he even asked for suggestions. My noble friend Lord Adonis has spoken of skills, and there he was absolutely right. I would be happy to oblige further, but I see that my time is nearly up, so it will have to be on another occasion. Perhaps the Minister thinks that getting business to raise its game and be more productive is anti-business or interference. It is not: it is pro-business and pro a business community that wants to raise its game, improve its performance and improve its engineering and technology. We have to ensure that rising productivity results in rising real wages for all, not just for the top earners. This Autumn Statement is a missed opportunity to change our focus from short-term rises in GDP fuelled by low-paid jobs—subsidised by the taxpayer and yet more credit—to lifting our ambition to raising the standard of living of us all through productivity. This is where the next Government—a Labour Government—will have to turn their attention.
My Lords, it is a pleasure to add to others’ my welcome to the noble Lord, Lord Rose, in eager anticipation of his maiden speech. The Statement of the right honourable Chancellor of the Exchequer has been welcomed and applauded in some quarters and criticised in others for its emphasis on what it means for individuals and families, as well as for the national economy. I am glad to see specific, though limited, encouragement for some individuals and welcome support for some often overlooked but important groups in society. The most noticeable and eye-catching announcements yesterday highlighted the changes to stamp duty, ISAs, fuel duty and air passenger tax. For some in our communities, these will be welcome news after an extended and extending period of fiscal tightening and often reduced disposable income. There will, however, be changes—as those on these Benches serving all parts of England know—that will make little or no difference to many who would echo the Chancellor’s wish to back the aspiration to save, work and own a home.
The dignity of work—with the capacity to provide for a family and save for the uncertainties of the future—and the ambition of home ownership remain beyond many. I shall look, and I am sure that I am not alone, for the benefits of the anticipated economic growth to reach those who may now be among the welcome record number in employment, but are still dependent—despite a full-time job—on benefits. he Chancellor’s new target of a personal tax allowance of £12,500 is undated and would just take those working full-time on minimum wage out of tax. Even then, at some future unspecified date, there would indeed be no income tax for those on the minimum wage but still national insurance contributions payable on income above just less than £8,000—an income tax of 12% by another name. Surely the time has come, for the sake of honesty and clarity, to name the reality and not perpetuate a fiction. I echo the conviction, used in a different reference last night, that we challenge this candour deficit.
The Chancellor’s confidence that we,
“stay on course to prosperity”—[ Official Report , Commons, 3/12/14; col. 327.]
is not yet the personal experience of many known to me and to the parishes and clergy in my diocese, including the urban and rural areas of coastal south-east Hampshire and the Isle of Wight.
There is much to welcome in the less publicised parts of the Statement. I know that many in this House will delight in the refund of VAT on expenditure by hospices. The taxation of such hugely valued provision and care, predominantly funded by voluntary donations, has long been overlooked and been for many of us indefensible. I welcome, too, the extension of the £2,000 employment allowance to carers, who do so much for family members, friends and neighbours in sickness and disability.
With less individual significance but of great importance to community and business, I am grateful to the Chancellor of the Exchequer for granting £15 million towards the repair of roofs on listed places of worship. This is recognition of the importance of our church buildings, many of which are at risk, to our national heritage. They are a tangible link with our past and very often a focus of local identity. Today, they are increasingly used not only for worship but for wider community activity, and are visited and enjoyed by a large and diverse number of people.
The support scheme for first-time exporters, the expansion of the Funding for Lending scheme with its focus on smaller firms, and at least a partial limit on the amount of past losses banks can off-set for tax purposes against future profits are important steps in encouraging small and medium-sized enterprise in our nations and ensuring that the biggest and strongest pay their proper share of what we should together fund.
This Autumn Statement sets a high level of aspiration and raises the hopes of many. I know your Lordships will understand if I conclude by saying that I pray, and not just hope, that, as we approach further substantial cuts in public spending, the aspiration for the nation will be enjoyed by the many and not just those who now benefit from the welcome but modest steps that the Chancellor has taken.
My Lords, I am delighted to follow the right reverend Prelate, particularly with his responsibilities in Portsmouth, since I have a special affinity with the Isle of Wight as Baroness Bottomley of Nettlestone. I strongly endorse his comments about assistance for hospices. So many of us have campaigned for so long for that small measure, and it is welcome to see it achieved. On his comments about carers, I worked for many years with the late Baroness Seear on what was the precursor to Carers UK. Even the smallest change in assistance for those caring seemed impossible—like getting blood out of a stone—so this is another welcome new development.
I also agree with the right reverend Prelate about the dignity of work, but the fact that 1,000 new jobs a day have been created since this Government came to power is an extraordinary achievement. I am not Mary Poppins, but the success of the changes in very difficult circumstances in the UK compared with the rest of Europe—France and Germany have been mentioned, while Japan is in recession—is a remarkable achievement. A great deal of tribute should go to the Chancellor. I do not say that only because I am sitting next to his father-in-law and feel that if I misspoke I might get into trouble with my neighbour. It is a remarkable achievement.
I pay tribute also to the Commercial Secretary. How many appreciate that this tremendous investment in infrastructure has been very much the responsibility of my noble friend Lord Deighton since he came into government? When I was a Minister in 1987 and again in 1992, I solved the Stonehenge problem. We were going ahead. It did not happen. How many infrastructure projects have been stuck on the drawing board? The Commercial Secretary has brought particular skills to make things happen. The House should pay tribute to him for that work.
Most especially, I commend the priority given in the Autumn Statement to the northern powerhouse. I speak as the Chancellor of the University of Hull and also, I am delighted to say, the Sheriff of Hull. The noble Lord, Lord Mandelson, is the high steward, but I am the sheriff. I agree with and endorse one specific comment made by the noble Lord, Lord Adonis: when is HS3 going to arrive in Hull? It is exciting to see the recognition of the northern cities, the northern powerhouses. In the same way that it was rivers and waterways that brought prosperity to so many parts of the country, today it is rail and road. The only way we will restore the economic strength of those cities is through this substantial infrastructure investment.
I link that with investment in human intellectual infrastructure. The Autumn Statement at long last introduces loans for postgraduate studies, which we should all welcome enormously. It has been widely welcomed. Nicola Dandridge, chief executive of UUK, said:
“We support the government's recognition of the substantial benefits arising from postgraduate taught education, and the need for support to ensure that some students are not priced out of further study”.
Don Nutbeam, vice chancellor of Southampton University, said:
“For many professions, a postgraduate degree is essential. Without affordable access to postgraduate education, many professions were simply out of reach of those who could not afford to pay”.
The NUS vice-president called it,
“a major step in the right direction”.
That is really important and very exciting.
I also celebrate the fact that the Francis Crick Institute in London will have a brother in the Sir Henry Royce development in Manchester. That is very exciting. I see my noble kinsman, the noble Lord, Lord Hunt of Chesterton, in his place. Our shared grandfather was at the age of 32 the principal of Central Manchester College of Technology, and we have always been brought up to have huge respect for the intellectual capital in that area.
Let me speak briefly about the National Health Service. A flourishing National Health Service facilitates economic growth and business opportunity. A healthy population with readily accessible health treatment, care and prevention is critical. The additional funding is hugely important. The £2 billion is very welcome, using the fines from the banks to support GP premises. Like others, I am greatly looking forward to the maiden speech of my noble friend Lord Rose of—well, an unspeakable name, but it is near Saffron Walden—because I hope that he will share with us how in the commercial world across the country people have to transform, reinvent and re-engineer services. With our sacred cow and much loved institution, we must translate the way in which services are developed.
This is really encouraging Autumn Statement, and I support those who paid tribute to the Treasury team who made it possible.
My Lords, we seem to have achieved the best of all possible worlds: a Conservative Chancellor was determined to eliminate the budget deficit in one Parliament and has achieved his predecessor’s idea of halving the budget deficit in one Parliament—so a Conservative Chancellor has achieved a Labour goal. We must welcome this but obviously it will take another Parliament to eliminate the rest of the deficit because life is never easy when you are Chancellor of the Exchequer.
In what little time I have, let me try to make sense of what is going on in the economy. As your Lordships may see, economics is very difficult because not only is it impossible to forecast, it is not even possible to tell what happened in the recent past. We have been told that our income was higher than we thought it was and that we had no double-dip recession—indeed, we had more or less continuous growth over the last five years. That is one fact. We also know that while employment has grown, wages have not kept up with prices and that therefore we face a problem with average real earnings. As my noble friend Lord Haskel pointed out, we also have a productivity problem.
The way to understand these things is, first, that the upgrade in national income was due mainly to things that are not visible in the economy. They are mainly abstract goods and services: this is not the old-fashioned idea of productivity, with a person working in a factory producing something physical. Our idea of productivity is very old-fashioned and the economy is moving away from that, so more or less when we talk about productivity we are really measuring only wages. In the public sector, the wage defines the product—but when you shift people from the public to the private sector, they get a lower wage because private sector wages are lower than public sector wages. Also, only a portion of the output counts as the productivity of the worker because there is a value added, which goes to profit.
So, first, the shift from public sector to private sector will lower productivity as calculated; whether a person is less productive or not does not really matter. Secondly, we have growth, thanks to IT, of jobs that are no longer contributing in any skilled way to output because a lot of what one would call the lower clerical jobs in retailing and elsewhere have now been replaced by IT. What people are doing is something further down the scale, in which productivity is bound to be low because there is not much work being done that involves skills.
These compositional effects of national income mean that we may be stuck with low productivity growth for some time to come: while income growth will happen, productivity growth will not. The first phase of this happened when a lot of manufacturing moved away from the UK and went to Asia. Manufacturing jobs declined, people went into services and productivity growth stopped. We will have a persistent problem of the tax receipts never matching up to the growth numbers—and if that happens, we will have to rethink how we are going to achieve the elimination of the deficit in the next five years. That is the bad news, as it were, but the bad news does not stop there. As far as one can see with what the world is going through, it is not just the UK but the eurozone, in particular, and the rest of the developed world. We used to call the other ones emerging economies. They have emerged and we are submerging, so the submerging developed economies are going to be in a low-growth, low-inflation environment for the next 10 or 15 years, as far as one can tell.
If that is going to happen in one of those long cycles, whoever is the Chancellor is going to have to come to terms with the fact that growth will be low. Maybe our growth will be higher than the world’s growth rate but it is not going to be 3% or 3.5%; it will be 2% or 2.5%. Given that, the budgets are going to be very tight, and even after we eliminate the deficit, there will be no room for any parties. As Crosland said many years ago, “The party’s over”. I think that the party will continue to be over.
My Lords, I do not have time to answer the disparagement by the noble Lord, Lord Lawson, of Keynesian stimulus. Perhaps one day we will be allowed to have a proper economic debate in this House in which we can pursue these issues further.
I will concentrate on one point: the Chancellor’s failure to meet his budgetary targets. Growth has been revised up to 3% this year, to be followed by 2.4% in 2015, then 2.2% and then 2.3% thereafter for ever and ever. My first point is that these forecasts are not worth the paper that they are written on because they are conditional on all sorts of unlikely things happening in that period. Their importance lies in the fact that they are the basis of his budget projections. In 2010 the Chancellor forecast GDP growth of 2.3% in 2010-11, 2.8% in 2011-12 and 2.9% in 2012-13. In fact the upwardly revised figures show that it was 1.6% in 2010-11, 0.7% in 2011-12 and 1.7% in 2012-13. According to the Chancellor the economy should have grown 8.2% compounded in that period, but in fact it grew by 4.1%. No wonder his deficit reduction plans went awry.
Agreed, it was not all his fault. Of course it was not; what happens to the budget is determined by what happens to the economy, and what happens to the economy is not all within the Treasury’s control. It is equally important to remember, though—here we do a little bit of Keynesian economics—that what happens to the economy is also determined by budgetary policy. That could hardly not be so, as government spending accounts for about 40% of GDP.
Ever since I started writing and speaking about these matters in 2010, I have been predicting that the Chancellor would not meet his budget targets. The reason I gave was that the pursuit of those targets in itself would slow down the economic growth on which their achievement depended. Why? Because it slows down the rate of spending in the economy, and growth depends on spending. The cuts have hit spending, and the spending has hit growth. So it is not surprising that the Chancellor finds himself with a projected deficit of £91.3 billion this year, when in 2010 he promised to balance the budget by the end of this Parliament.
According to the OBR, the discrepancy between the projection and outcome results from the “unexpectedly weak” performance of tax receipts. Perhaps it was unexpected only to the experts at the Treasury. In fact it was the logical consequence of growth being so much below what was expected between 2010 and 2013, and of what has been happening to the labour market since then. The Government have congratulated themselves on the fall in unemployment. We would expect falling unemployment to increase tax revenues and reduce public spending—but not if unemployment is replaced by jobs that pay so little that those who fill them pay no direct tax and their income has to be propped up by benefits. For example, the number of housing benefit claimants who are in work has doubled since 2009.
So why has the British economy been growing at all? The answer is very largely because there are more people in the country. The population was 62.3 million in 2010; today there are 64.1 million, 2 million more, virtually all of them of working age, and more people are coming in every month. Any economy will grow if it has more people working. The only relevant welfare measure—the measure by which any Government deserve to be judged—is GDP or national income per head. Our GDP grew by 4.1% between 2010 and 2013, but GDP per head has grown by only 2.3%. Real wages have fallen between 5% and 10%, and the typical earner is £1,600 a year worse off.
In conclusion, we are left with the prospect of another round of brutal spending cuts with the rolling five-year deficit reduction programme rolling ever further into the future. With productivity growth likely to be so weak, for the reasons pointed out by the noble Lord, Lord Desai, the Chancellor’s new projections will prove as delusional as his previous ones. It sometimes helps if the people running economic policy do know some Keynesian economics.
Maiden Speech: My Lords, I speak, for the first time in this House, with both nervousness and trepidation. Before addressing the House from the perspective of a lifetime in shopkeeping, I offer heartfelt thanks to everyone for the very warm welcome that I have received in the few weeks since my introduction. Like many newcomers to this House, I, too, have found myself on more than one occasion being gently intercepted and redirected on my second or third passage round a particular place, always in the most courteous and helpful way. I also extend my sincere thanks to my two sponsors who introduced me to this House: the noble Lord, Lord Myners, and the noble Baroness, Lady Lane-Fox. Particular thanks are also due to my noble friend Lady Noakes, who has been endlessly generous with her time and both wise and firm in her advice.
That I am in this House at all is a matter of amazement to me, and of considerable amazement to my friends and colleagues. It is a matter of amazement also to my father, but one of considerable pride; for I am one of those who would not have been here at all if my father had not been plucked from war-torn China in 1938 by a Quaker spinster lady. She brought him to England at her own expense, educated him and sponsored his British citizenship.
People often ask me how I planned my career. In truth, I did not. Following a failed attempt to enter medical school I wrote to more than 50 companies seeking employment. Only one replied—Marks & Spencer. It also offered me a job, so there was no margin for error there. My new employer set about instilling in me most of the business values that I have tried to follow over the past 40-plus years It was not all plain sailing and it was not all fun, but it must have been pretty effective because it worked for me and for the four other Peers from the same stable at Marks & Spencer who have preceded me. After 17 years I moved on to various other retail chains in other pastures, learning new skills under some very inspirational leaders, returning to my old employer at the end of my full-time career.
Your Lordships know that retail is a competitive and dynamic trade and a very important part of our economy. Indeed, it is the largest private sector employer in the country. Attention to detail, quality, value, service, innovation and trust are the keys to success, and we forget them at our peril. Staying close to our customers in this fast-changing world is also important. Successful retailing is about having your finger on the pulse of every trend, behavioural change and new technology, and anticipating what changes they will bring. The ability to react to these changes, in a world which is itself changing at an ever faster rate in a truly global economy, requires boldness, imagination and investment.
We in the United Kingdom are once again enjoying growth, because businesses of every complexion have continued to drive efficiency and deliver goods and services that are innovative and highly competitive. Our economy has seen real recovery, but it is potentially fragile. It is also highly dependent on growth returning to the global economy, particularly to Europe. Consumers and all businesses, be they retail, manufacturing or others, need to be able to plan for the future in an economic climate and landscape that encourages investment and promotes confidence.
I travel frequently throughout the United Kingdom, wearing various business hats, and I see clear signs that confidence is returning—and that is borne out by the statistics. We have had record business start-ups, and unemployment has fallen. These improvements are, in my view, the result of the tough but very necessary measures put in place over the past few years to create a business-friendly environment. However, the job is not done, and it is vital that we continue to keep providing the stable economic backdrop and the incentives necessary to finish the job and return the UK balance sheet to robust health.
Yesterday’s measures announced in the Autumn Statement are most welcome, particularly as we see some further faltering in the global economy. The measures announced further to invest in infrastructure and stimulate small business growth are right. The review of rates is to be welcomed, although here I must declare an even-balanced interest as chairman of Ocado, a wholly online grocery delivery business, and of Fat Face, a purely bricks-and-mortar business.
UK business has done an enormous amount to recover and regroup over the last few years. Now is the time to continue to invest and, to do this, business and government need to work together to ensure that our future prosperity is put in place by having the right incentives, right financing and right regulatory framework.
Confidence has always been a driver of business and investment, and lack of confidence is a big deterrent. Business needs an economic climate that encourages and rewards long-term investment. Investment today is our livelihood tomorrow—our future economic security. We have come a long way, but in this world, where so much of what happens is outside our control, we must have a firm hand on the tiller of what we do control.