The Economy — House of Lords, 2016-04-28
Topic: Macroeconomics
David Stephen Geoffrey Pollock (Labour, Centre-left): My Lords, I also begin by expressing my appreciation of the late Maurice Peston. Maurice was my academic colleague at the start of my university career. Our opinions were in agreement over a wide spectrum of social and economic issues. I valued his friendship greatly, as much as I valued his wisdom and his reckless humour The Government have pursued some disastrous economic policies throughout their period in office without heeding the consequences, which have been to perpetuate our economic depression and wreck our manufacturing industries. All the while, they have been fondly imagining that the UK economy can be revived by encouraging investors from overseas. One of their encouragements to investment has been a regime of low business taxes. Our corporation tax rate of 20% is one of the lowest in Europe. It compares with the OECD average of 25% The measures by which we protect our workers from exploitation by their employers have become some of the weakest in the European Union. This has also been envisaged as an encouragement to investors. The Government’s mantra has been that Britain is open for business. These inducements have not worked. They have failed to attract productive industrial investment to the UK, nor have our banks or our native financial institutions been willing to invest in our manufacturing industries’ productive capacity. Our manufacturing sector has shrunk to become one of the smallest, as a proportion of GDP, among the economies of the European Union. It now accounts for less than 10% of our GDP The regime of low taxes has meant that another of the Government’s objectives—to reduce their budget deficit—has not been met. The date by which the Government’s budget should be returned to surplus has been successively deferred. The swingeing reductions in government expenditure have not succeeded in reducing the deficit. Instead, they have exacerbated our high level of unemployment and served to immiserate a large sector of our population There has been some significant inward investment during the period in question that has greatly profited our financial sector and those who work within it. However, instead of talking of inward financial investment, which is a highly misleading description, we might talk more accurately of a process of divestment. The financial sector has been instrumental in divesting the nation of ownership of many of its productive enterprises. They have been sold abroad in a manner that has enriched the financiers. The nation has also divested itself of ownership of a large amount of residential and commercial property in a process that has been accompanied by considerable inflation in prices The Government have done nothing to impede these processes. Our lax laws of corporate governance have allowed the hostile takeover by foreign interests and global financiers of some of our premier companies. The laws have permitted the rapine capitalism of which Philip Green, the erstwhile owner of British Home Stores, is a notable exponent. Companies such as Cadbury, Boots and Rowntree’s, which were once the exemplars of philanthropic capitalism, have been sweated by their new owners to produce exorbitant profits in the short term. Many of our high-tech industries have gone the same way. On a previous occasion I highlighted the example of our aviation industry, much of the supply chain of which has fallen into foreign hands. The intellectual capital of these industries has been captured by foreign owners, and further investment in their industrial capacity and research and development has not been forthcoming It is widely recognised by the Governments of our economic competitor nations that Governments have a role to play in fostering the research and development that leads directly to industrial applications. Our Conservative Government have chosen to relinquish this role. They have sought justification for this dereliction in their free-market ideology A painful example of this failure is provided by our nuclear industry. It was once a world leader. It should have been destined for a major revival in consequence of our need to build a new generation of nuclear power stations. Instead of depending on our native resources, the Government have been prepared to allow any willing provider to build the power stations. It transpires that the only willing providers were the nationalised industries of France and China. A latecomer has been the Horizon Consortium, led by Japan’s Hitachi Corporation. Its advanced boiling water reactor is currently subject to a generic design assessment, which is a very prolonged affair. Now it is doubtful whether the French nationalised industry EDF, or Electricité de France, is prepared to undertake the task. I mention in passing that the Government have flatly rejected the suggestion that we should acquire equity in the French company so that it might become an industry owned jointly by ourselves and the French. That would have been one way of ensuring that a nuclear power station would be built at Hinkley Point. However, in response to that suggestion, we have been told that any contract to build a power station should be a strictly commercial affair. I am inclined to assert that, in view of the Government’s proposed inducements and guarantees, it would be nothing of the sort The consequence of this debacle is that we may have to rely solely on the Chinese to build our nuclear power stations. We shall be heavily dependent on a foreign provider with interests and intentions that are likely to be inimical to our own. The encouragement of Chinese inward investment has been a prominent part of the agenda of the Chancellor of the Exchequer, George Osborne. During his trip to China in January 2012, which was ostensibly to encourage their uptake of British exports, he succeeded only in encouraging the Chinese to purchase British companies. Osborne’s encouragement of Chinese investment has had some devastating effects. Uniquely among the countries of the European Union, Britain has offered no resistance to the dumping of surplus Chinese steel on our markets at subsidised prices, with which our own industry could not compete. This lack of resistance has been in consequence of a desire not to offend Chinese interests. The result is that we are in danger of losing our national steel industry, albeit one that is now largely in foreign ownership It is now time for me to offer some prescriptions for how a British Government ought to handle their economic affairs. I shall begin with the first issue that I have raised. The Government should reform our laws of corporate governance so as to inhibit the depredations of venture capitalism, be it native, foreign or global. The predominance of the financial sector has been at the expense of the economy’s other sectors. Its activities have enhanced the demand for the pound on the international currency markets. The pound’s elevated value has made it difficult, if not impossible, for British firms to sell their manufactured goods abroad. The Government ought therefore to take steps to devalue the pound in order to encourage such exports. Only in this way can our unprecedented current account deficit be tackled The Government ought to be far more active in investing in our national infrastructure. The only infrastructure projects that have been pursued throughout this Government’s period in office have been a legacy of the previous Government. Their unwillingness to undertake more investment has been in consequence of their self-imposed fiscal constraints, which have also made them unwilling to support the research and development that is essential in any successful industrial economy. A Government who intend to support essential social investments ought also to be prepared to raise the necessary taxes. There is huge scope for acquiring extra revenue by addressing the tax avoidance and tax evasion that is rife in this country. Nevertheless, it will be necessary to increase rates of taxation Politicians of all parties avoid talking of raising taxation rates. It is feared that to do so will inevitably damage their electoral prospects. However, this need not be so. The US economy’s emergence from the great depression was accompanied by a marked growth in central government taxation and expenditure. Surely the electorate can be persuaded of the necessity of such increases by being reminded of their beneficial effects.