Budget Statement — House of Lords, 2015-07-21
Topic: Macroeconomics
Simon Haskel (Labour, Centre-left): My Lords, I, too, welcome the focus of this Budget on productivity. On Friday morning, I got hold of this paper and I read it and, yes, the index indicated that the paper was going to deal with the many aspects of productivity that concern us on this side of the House—so, welcome to our concerns, Minister I started reading the paper and fairly soon I got the same feeling you get when you take a book out of the library and, after you have read the first chapter or two, you realise that the plot is familiar. Gordon Brown’s five drivers for productivity were all there, but enterprise had been split up into resurgent cities, fair markets, infrastructure and productive finance. That was practically what Vince Cable did when he produced his industrial strategy, as the noble Baroness, Lady Kramer, has reminded us. Okay, the diagnosis has not changed, so what about the medicine My friends in business keep pointing out to me that what matters in the end is individual businesses becoming more competitive and raising their game. How does the business plan encourage this? At paragraph 2.13, Sir Charlie Mayfield is going to engage with other business leaders to develop proposals to encourage long-term financial thinking. Yes, investing in science and innovation is an important part of productivity, but where to invest? Sir Paul Nurse has been asked to lead an independent review. In a recent debate, the Minister himself and several other noble Lords were concerned about the way we measure productivity. True enough, on Budget day it was announced that Sir Charlie Bean will review the work of the Office for National Statistics. I think that noble Lords will get the message. There have been endless reviews, but what we need is action. We need action because next April, the low-wage subsidy is going down and the minimum wage is going up, but the IFS has told us that one does not balance the other out, in spite of the additional allowances The only way to deal with this is, as I say, for business to raise its game and take practical steps. I do not think that this is unreasonable because the answers already exist, as my noble friend Lord Bhattacharyya reminded us. I have been told by friends that Six Sigma, continuous improvement and lean processing are all tried and tested methods in common use. There is a modern manufacturing centre and catapult in Sheffield to help out. ISO 2001 and matching markets are all known to be effective ways of raising productivity in services, as is connecting everything digitally on standard platforms. I am sure that the Minister knows that. I can tell my noble friend Lord Desai, who is not in his place, that in the hospitality and services sectors, which are very large, productivity goes up when staff are offered a career with a clear pathway and investment is made in skills. That is largely because you get retention. Generally, there are all kinds of digital schemes to raise productivity which are supported by the noble Baroness, Lady Lane-Fox, in her capacity as a promoter Success does not hinge on a list of proposals, however worthy they may be. It requires the Government to reshape their political position so that all the signs point to raising productivity, but in this Budget the message is mixed. My noble friend Lord McFall mentioned some of the mixed messages. Rebalancing tax on dividends helps, but perhaps long-term investment would be better served by a higher level of tax relief on capital instead of a small, lower level reduction in corporation tax. Also, is a more generous inheritance allowance an incentive to invest There are other pressures. If productivity fails to increase sufficiently but wage growth continues to accelerate, the Bank of England would be forced to raise interest rates more quickly. That will help neither investment nor exports. Our balance of payments deficit has to be tackled. So my point is this: if it is the intention of the Government to help pay for the increased minimum wage and the withdrawal of in-work benefits by raising productivity, practical steps have to be taken, and they have to be taken now. In 12 months’ time, in-work benefits will decrease and the minimum wage will go up. If productivity does not fill the gap, the numbers that the Minister gave us just will not work. We will see yet more poverty and inequality, and especially more child poverty, as other noble Lords have mentioned The Chancellor has said that Britain deserves a pay rise. Yes, but we have to earn it, and do so through productivity. We know how to do that and many firms are already doing it, but others must raise their game and meet the challenge—and they must do it now. What are the Government going to do to encourage this?