Economy — House of Lords, 2015-09-10
Topic: Macroeconomics
John McFall (Labour, Centre-left): My Lords, it is a pleasure to participate in this debate and to congratulate my noble friend Lord Haskel on it, particularly as it comes on top of the debate in the name of my noble friend Lord Monks earlier this year As has been mentioned, productivity has collapsed in the United Kingdom and, by the way, that is why employment is buoyant. The Economist had it right on 14 March when it said that if Britain, "cannot get more from its legion of cheap workers, the recovery will stall" Output per worker is still 2% below the pre-crisis peak, while in the rest of the G7 it is 5% higher. The French could take Friday off and still produce more than Britons do in a full week, while, confounding stereotypes, the Italians’ output is 9% higher. When people are cheap, rather than invest in machines and technology, firms will hire them, so productivity is held down. While the Government’s report, Fixing the Foundations, is admirable in its rhetoric, we are still to find out what flesh there is on that issue On the austerity agenda, I welcome the debate because there is a need to highlight the nonsense that is spoken about it. We have to strip away the hype and expose the reality. What has happened with the Chancellor’s policy is that there has been a prolonged recession that has produced a lopsided and unbalanced recovery. Millions of people in Europe and elsewhere rightly feel that the current economic order is not serving their interests, hence Syriza in Greece, Podemos in Spain, Le Pen in France, Beppe Grillo in Italy, Trump in America and, dare I say it, the SNP in Scotland. The key is to challenge the nonsense on deficits and perpetual balanced budgets that the Chancellor comes out with. We need to give serious consideration to the development of a positive narrative on why running a deficit now holds the key to future growth In 2009, the United States was running a 10% deficit, yet today its economy is growing more than that of any European country which is running a surplus. We do not need to go back too far, just to the Second World War, when we had debts worth 250%, but at the time we had the National Health Service, a debate on welfare and a Conservative Government who, in the early 1950s, built 300,000 houses a year, a record that still stands. That has to be recognised I have been calling in Parliament for a state bank since 2009. We can see the example of the Nordic banks, while when the European Investment Bank gets up, it is set to finance more than £220 billion of investments by 2017 with a fiscal outlay of less than £20 billion. There is a lesson in that. Despite this Government failing to meet their fiscal targets, interest rates on UK public debt are still astonishingly low: 30-year and 50-year gilts yield 2.4% while the yields on comparable index-linked gilts are close to minus 1%. If anything comes near being a free loan, that is it, so there is a need to invest and for growth-promoting borrowing. That is what is required We also need to expand our thinking. Yes, businesses are wealth creators, but it is more than that. We need a fusion of business, the state and the working population to create wealth. I remind noble Lords of Google and Apple. Google was given a grant by the US National Science Foundation which allowed it to discover its own algorithm. Without that state funding, it would not have happened to Google. If one side of the triangle of business, the state and the working population is missing, we will not realise our aims. We have to reject the Chancellor’s narrow and woefully misleading view that the sole economic problem is the budget deficit. The main obstacles are pitiful productivity levels, the poor performance of manufacturing industry, a lack of capital investment and the resulting balance of payments deficit. We need new policies, but above all we need a new mindset. If my noble friend Lord Haskel’s debate today has introduced a chink of light for that, it will have done the House a great service.